UPDATE 1-China's Bank of Communications Q1 profit up slightly, but margin shrinks

* BoCom NPL ratio inches lower vs prior quarter

* Bank sees profit margin shrink (Adds details of results)

BEIJING/SHANGHAI, April 29 (Reuters) - China’s Bank of Communications Co Ltd (BoCom) reported a 2.3% rise in first-quarter net profit, helped by the world’s second-biggest economy rebounding from the coronavirus pandemic.

Net profit for China’s sixth-largest commercial bank by assets came in at 21.9 billion yuan ($3.4 billion) for the quarter ended March 31, up from 21.5 billion yuan in the same period of 2020, according to its statement to the Hong Kong stock exchange on Thursday.

BoCom and other big state-run banks have benefited as economic activity recovers in China from the coronavirus pandemic. Lending still makes up the bulk of their earnings, compared to their western peers, many of which have formidable investment banking and securities trading businesses.

That meant the Chinese lenders were not able to reap the trading bonanza derived by Wall Street banks in the first quarter, though they avoided costly missteps, like the big exposures to the failed Archegos fund, that their U.S. and European peers had.

But the Chinese banks have begun to pull back on their lending, amid Beijing’s worries about exuberance in some sectors such as property.

BoCom’s non-performing loan (NPL) ratio inched lower to 1.64% at end-March from 1.67% at end-December.

Net interest margin, a key gauge of profitability, fell to 1.54% by end-March from 1.57% at end-2020.

Analysts, however, note that China’s lenders face a spike in NPLs once the government mandated grace period for calling in soured debt expires at the end of this year.

$1 = 6.4674 Chinese yuan renminbi Reporting by Cheng Leng, Zhang Yan and Engen Tham; Editing by Edmund Blair and Muralikumar Anantharaman