Chinese banks posted a big drop in non-performing loan ratios last year, helped by the top banking regulator's great efforts to strengthen risk-control mechanisms and improved loan quality.

The China Banking Regulatory Commission said Thursday that the bad loan ratio of major banks in China, which includes four State banks and a dozen shareholding commercial banks, stood at 13.2 percent last year, falling 4.6 percentage points as compared with 2003.

Their total outstanding bad loans also plunged by 394.6 billion yuan (US$47.542) to 1.71 trillion yuan (US$206 billion) last year, the regulator said in a statement.

According to the commission, last year was the third consecutive year to witness drops in both Chinese banks' total bad loan volume and ratio.

The drops wiped out some analysts' worries that the government's tough rein in some overheated sectors may have increased banks' bad loan ratios.

Their concern was that stringent lending rules may lower banks' total loan volumes, hence adding difficulties for banks in their campaign to reduce bad loan ratios, just as the government takes steps to cool down frenzied lending to keep sustained economic growth.

The four major State-owned commercial banks, according to the statement, reduced their bad loan ratios to 15.6 percent, down 4.8 percentage points. Their outstanding bad loans totaled 1.57 trillion yuan (US$189.7 billion) at the end of 2004, 349.9 billion yuan (US$42.15 billion) less than the previous year.

(China Daily January 14, 2005)