JPMorgan Chase and the Federal Reserve Bank of New York agreed on Friday to provide emergency financing to Bear Stearns Cos after the investment bank said its cash position had deteriorated sharply, sending its shares into freefall.
Speaking on the sidelines of the annual session of China's parliament, Xiao said he was most interested in acquisitions in the Asia-Pacific and the Middle East.
But he declined to comment on reports that Bank of China is on the shortlist to buy into Bank of Internasional Indonesia, the country's sixth-largest lender.
Malaysia's Maybank is the frontrunner to buy Singapore state investor Temasek's stake in BII, valued around $800 million, a Malaysian business weekly reported on Saturday.
Bank of China is the Chinese lender that has been hardest hit by the U.S. subprime mortgage crisis, which Xiao said had not yet peaked.
But he reiterated that the bank would report "marked" profit growth for 2007 because its subprime exposure was limited.
"Our subprime-related investments accounted for only 2.3 percent of our total securities portfolio," Xiao said. "After some disposals in the fourth quarter, the percentage was even smaller by the end of the year."
Bank of China reported securities holdings of 1.96 trillion yuan at the end of September, out of overall assets of 6.02 trillion yuan, and Xiao said the total was below 2 trillion at the end of 2007.
The bank had made full provisions at the end of 2007 but was prudently re-evaluating its securities portfolio in light of the continued deterioration in market conditions, Xiao said.
He said Bank of China's yuan-denominated lending grew at a double-digit pace last year but was below the industry average of 16.1 percent, a trend that was likely to continue in 2008.
New loans this year would be no greater than last year, in keeping with instructions by the central bank, which is striving to cap lending growth.
Even with a limit on new lending, Bank of China had plenty of scope to increase the profitability of its loan book, Xiao said.
"Don't look just at new loans, which are about 200-300 billion yuan a year. Remember we have outstanding loans of two trillion yuan, and there's a lot we can do with that," Xiao said.
Specifically, the bank could call in loans from some clients and extend the credit to others, Xiao said, without naming any sectors.
Bank of China, the country's largest foreign-exchange lender, expects brisk expansion in its overseas lending this year, the chairman said. Syndicated loans would be a particular priority.
"As we all know, many overseas banks have less money to lend," said Xiao. "We can take the opportunity to find good projects."