The non-performing loan (NPL) ratio of banks in China fell 4.14 percentage points in the first half of 2005 to an average of 8.71 percent by end-June, the banking watchdog has said.

"Banks in China are continuing to upgrade their loan quality in general," the China Banking Regulatory Commission (CBRC) said in a latest report.

Commercial banks in China, including foreign institutions, report their outstanding non-performing loans (NPLs) stood at a combined 1.28 trillion yuan (US$157.83 billion) by the end of June.

Included were 373.62 billion yuan (US$46.07 billion) of loans classified as "losses" by the international standard -- referring to loans whose principal and interests cannot be recovered.

The CBRC report broke down to say that the Big Four state banks' NPL ratio scored a decrease of 5.45 percentage points to 10.12 percent in the six-month period, while that of the 12 smaller national shareholding banks fell 0.3 percentage points to 4.66 percent.

The decrease of Big Four including the Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank and Agricultural Bank of China was largely owed to the ICBC -- assets-wise, China's biggest bank -- who sold as much as 459 billion yuan (US$56.6 billion) of NPLs to the country's four asset management companies (AMCs) earlier this month in preparations for joint-stock reform and stock market debuts.

China set up the AMCs, namely Huarong, Cinda, Orient and Great Wall, in 1999 to manage a total of 1.4 trillion yuan (US$172.63 billion) in NPLs transferred from the state banks, but the banks' remaining bad loans are still whopping.

The country is now overhauling its banks, largely including the Big Four, ahead of the World Trade Organization-mandated opening of the financial market to more sophisticated overseas rivals by the end of 2006.

The Chinese banks are required to shake off their NPL burdens, boost their capital base, cooperate with strategic foreign investors and go public. In sharp contrast with their Chinese peers, famous foreign lenders usually report a NPL level of 1-2 percent.

On Thursday, the CBRC also posted modest reduction of NPLs at the country's city and rural commercial banks, which mainly provide financial services for local economic expansion.

The NPL ratio of foreign banks in China climbed a negligible 0.05 percentage points to 1.14 percent in the first six months this year, it added.

(Xinhua News Agency July 29, 2005)