China's banking industry has won high marks from Standard & Poor's in a new report released on Tuesday.

Called "China Banking Outlook 2005", the report states that while the country's overall banking sector is still characterized by low profitability, weak asset quality and capitalization, increased government capitalization and ongoing reforms have helped improved the industry's financial profile.

It also says stronger regulation is likely to lay a solid foundation. In July, S&P raised its ratings on the Bank of China and China Construction Bank, two of the country's four leading institutions, from speculative to investment grade.