And the China Construction Bank reported a 6.2 billion yuan (US$983.25 million) rise of outstanding bad loans than year-start by the end of 2011.

Statistics released earlier by the China Banking Regulatory Commission (CBRC) show that outstanding loans of large commercial banks, joint-equity banks, city commercial banks, and rural commercial banks all increased in the fourth quarter of 2011, up 11.7 billion yuan, 3.2 billion yuan, 900 million yuan, and 4.4 billion yuan respectively, from the previous quarter.

Though the bad loan ratio and outstanding bad loans of China's banking industry posted on-year decline in the fourth quarter of 2011, the outstanding bad loans increased 4.9 per cent from the previous quarter and the bad loan ratio climbed to 1.0 per cent from 0.9 per cent.

This is the first time that Chinese banks reported on-quarter increase of both outstanding bad loans and bad loans ratio.

The increase in bad loans of these banks reflects the downward performance of the real economy's impact on the quality of banks' assets, said a risk analyst from a large commercial bank, adding that the rebound was mainly a result of banks' prudent and strict supervision of the classification of loans.

Besides, some private small and medium-sized enterprises failed to pay back loans in time due to weak external demand, rising operating risk, and inadequate capital supply.

Admittedly, China's commercial banks would face pressure from asset quality. However, the increase of bad loans could be interpreted as a bad loan cycle on the way.

(XIC)