The China Banking Regulatory Commission (CBRC) had dispatched representatives to check how State-owned commercial banks were managing non-performing loans (NPLs) to enhance their competitiveness.

The move would also ensure the effectiveness of the country’s macro-economic controls, the CBRC said.

The banking regulator wants to ensure State-owned commercial banks are properly classifying loan risks according to the country’s five-category system.

It also urges the banks to further reduce their NPLs and increase risk provisions and supplementary capital for bad loans.

The banks should keep a close eye on their loaning principles and cash flows, the CBRC warned, adding credit risk was the main risk the banks were facing.

Despite improvements achieved by Bank of China and China Construction Bank, the total NPLs at China’s four largest State-owned banks remained at a high level, the regulator said.

The CBRC will also make monthly reports on the NPLs at the banks and evaluate their financial status each quarter.

According to the latest statistics, the total assets of China’s State-owned commercial banks reached 16.3 trillion yuan (US$1.96 trillion) by the end of September, up 8.1 percent from the same period last year. Meanwhile, their liabilities totaled 15.65 trillion yuan, a year-on-year increase of 8.2 percent.

Earlier this year, the regulator has ordered commercial banks to control lending to overheated sectors like steel, aluminum and cement in a bid to reduce the banks’credit risk and slow the country’s investment growth.

China is racing to restructure its NPL-plagued State-owned banks to sharpen their competitive edges ahead of full liberalization of the sector at the end of 2006.