All Chinese commercial banks achieved a significant drop in non-performing loan ratio in 2008, according to data released on Friday by China Banking Regulatory Commission (CBRC).

The other major indicators commonly applied to test the strength of the Chinese banking system also exceeded all regulatory requirements, CBRC said.

Non-performing loan of the country's major commercial banks at the end of 2008 dropped by 706.5 billion yuan from a year earlier to 494.4 billion yuan, bringing the average non-performing loan ratio down 4.24 percentage points to 2.49 percent, the CBRC figures showed.

The capital adequacy ratio of all Chinese commercial banks remained above the regulatory level, with the average provision coverage ratio reaching 115.3 percent, up 74.1 percentage points from the year before.

As an additional safeguard against a possible increase in risks stemming from an unexpectedly steep economic decline, CBRC has further raised the 2009 target for risk control on commercial banks. The average provision coverage ratio has now been increased to no less than 130 percent and the capital adequacy ratio to above 8 percent.

The banking regulator warned of the increased pressure placed on banks' earnings in 2009, arising from the narrowing of interest rate spread, shrinking income from intermediary businesses and higher risks involved in overseas investment.

The commission said it was in discussions with the Ministry of Finance to lower the sales tax on small banks to lessen their burden in a downward economic cycle.

In addition to urging banks to observe the stricter risk control requirements, the regulator reiterated the importance of the contributions they could make in promoting economic growth, especially in the expansion of credit support to small and medium-sized firms and agriculture related projects.

Source: China Daily