China's commercial banks reported lower rates of non-performing loans in the first nine months of the year, the industry regulator said Tuesday.

China Banking Regulatory Commission (CBRC) statistics showed that non-performing loans for the country's major commercial banks stood at 1.2 trillion yuan (US$152 billion) by the end of September, 46.9 billion yuan (US$5.9 billion) lower than at the end of 2005.

The bad-loan ratio was 7.6 per cent, 1.3 percentage points lower than the end of last year.

The combined non-performing loans of five State-owned banks fell 1.2 percentage points to 1.1 trillion yuan (US$139 billion), or 9.3 per cent of total lending, by the end of last month.

Twelve joint-stock banks had total outstanding bad loans of 116.8 billion yuan (US$14.8 billion), 30.5 billion yuan (US$3.9 billion) lower than at the end of 2005. The bad-loan ratio of joint-stock banks fell 1.3 percentage points to 2.9 per cent.

The figures show that the banking sector has made progress in improving risk management and that the government's push to tighten lending has taken effect, the CBRC said.

In recent months, the government has repeatedly urged domestic banks to be cautious about lending to sectors that face overcapacity.

"The banks should continue to restrain the pace of lending growth," Liu Mingkang, the CBRC's chairman, said at its meeting yesterday.

He said that recent rapid growth of mid- and long-term loans for fixed-assets investment projects increased the potential risks to the country's banking industry.

Mid- and long-term loans grew 21.4 per cent in the first nine months of the year to 10.9 trillion yuan (US$1.38 trillion). The growth was 6.8 percentage points higher that that of total lending.

"With both domestic and global economic growth cooling, the problem of excessive liquidity and overcapacity in some industries will persist, meaning those risks to banks may gradually surface," Liu said.

To improve the banks' ability to fend off risks, the regulator has urged banks to raise their capital-adequacy ratios. By the end of September, 55 banks had capital-adequacy ratios of above 8 per cent, two more than at the end of last year.

The banking sector has also diversified its loan structure by offering more credit to small enterprises and to the agricultural sector to improve risk management.

By the end of last month, rural financial institutions' outstanding loans to the agricultural sector rose 20 per cent year-on-year to 1.3 trillion yuan (US$164.6 billion), the CBRC statistics showed.

And the banking regulator's detection of irregularities and illegal activities has made progress in the first nine months of the year.

It uncovered 724 cases of irregularities among domestic lenders, about one-fifth fewer than in the same period last year.