Chinese joint-stock commercial banks' efforts to improve their risk management mechanisms and contain financial risks paid off in the first of this year, the China Banking Regulatory Commission (CBRC) said Wednesday.

Outstanding loans at the nation's 11 joint-stock lenders totalled 2.7 trillion yuan (US$325 billion) at the end of June, up 12.83 per cent from six months earlier, while their total assets grew by 8.84 per cent to 4.3 trillion yuan (US$518 billion).

Loan growth was down from high levels in the earlier months of the year and the latter half of last year, which had fuelled worries about the economy being overheated and triggered tightening measures in recent months.

"The trend of fast credit growth was under control," the CBRC said Wednesday in a statement following its half-year meeting of joint-stock commercial banks.

On Tuesday, the commission also said bad loans at the 11 lenders stood at 140 billion yuan (US$16.8 billion), or 5.16 per cent of their total lendings, at the end of June, down 2.46 percentage points from six months earlier.

China's fixed investment rose precipitously since the middle of last year, largely driven by soaring profits in sectors like steel, cement and aluminium. The investment expansion also fuelled a surge in bank loans, which heightened the risk of more bad loans being added to the banks' already weak balance sheets, analysts said.

The Chinese Government has taken a slew of measures to harness the rapid investment and loan growth, including requiring banks to set aside more reserves to restrict their lending capacities and impose land controls and credit curbs.

Subsequently, the pace in investment and loans slackened significantly in the past two months. But the sizable slowdown has also triggered concerns that some banks have been excessively strict with their lending operations, which analysts fear may erode economic momentum.

Many companies, especially small and medium-sized firms, are already feeling the pain as banks significantly tighten short-term working capital loans.

The CBRC stressed a selective stance on lending Wednesday, urging banks to continue their tightening policies in overheated sectors while stepping up funding support to such areas as agriculture and transportation.

For the remainder of the year, the commission said it wanted banks to take the State's ongoing macroeconomic management as an opportunity to build their long-term risk management mechanisms.

It emphasized the role of capital restraint in the banks' risk management efforts, cautioning them not to formulate excessively ambitious full-year plans that go beyond their capital strength.

The commission also urged greater efforts by banks to reduce their non-performing loans, reiterating it would hold bank chiefs accountable for failures to contain bad loans.

It recognized on Tuesday that a new batch of bad loans will likely emerge from fixed asset projects that have been suspended or ordered to stop construction as part of the State's tightening measures.

(China Daily July 29, 2004)