China's 30,000-plus rural credit cooperatives have reported their first aggregate profit in more than 10 years, the China Banking Regulatory Commission (CBRC) announced on Tuesday.

The cooperatives, together with a few newly established rural commercial banks and cooperative banks, posted combined profits of 10.5 billion yuan (US$1.3 billion) in 2004.

A total of 26,245 such cooperatives -- 81 percent-- are writing their year-end income statements in black ink.

The State Council, China's cabinet, approved a pilot scheme in 2003 to restructure the unprofitable credit co-ops, which are the major source of funds in the nation's rural areas.

The CBRC said earlier it would help the cooperatives reduce bad loans and improve management to enable overseas and domestic strategic investors to enter the sector, but has yet to report any specific progress in this regard.

It did say that the cooperatives' strong lending operations greatly boosted their interest income last year.

New loans totaled 2.4 trillion yuan (US$290.0 billion) last year, 405.0 billion yuan (US$48.9 billion) more than in 2003, helping to lift interest income by an annualized 30.8 percent to 112.2 billion yuan (US$13.5 billion).

The cooperatives cut their nonperforming loans by 54.5 billion yuan (US$6.5 billion) during the year, bringing their aggregate NPL ratio down by 6.3 percentage points to 23.1 percent at the end of 2004.

"The cooperatives' improved asset quality effectively reduced their proportion of non-interest-yielding assets, and raised their returns on assets," the CBRC said in a statement.

Governmental support played a major role in improving the cooperatives' profitability last year, according to the commission: in all eight provinces and municipalities where pilot reforms took place last year, the credit co-ops finished the year in the black.

The cooperatives in the eight selected regions -- Jilin, Shandong, Zhejiang, Guizhou, Jiangxi, Jiangsu and Shaanxi provinces and Chongqing Municipality -- were granted subsidies and tax breaks and were allowed to swap their bad assets with central bank bills.

They were also allowed to restructure according to regional conditions, selecting whether to operate as shareholding entities, cooperatives or a combination of the two.

(China Daily January 19, 2005)