CHINESE banks' bad loans increased for a fifth straight quarter, the longest deterioration streak since the data became available in 2004, as the economy slows.

Loans overdue for at least three months rose by 14.1 billion yuan (US$2.3 billion) in the three months ended on December 31 to 492.9 billion yuan, the China Banking Regulatory Commission said in a statement on its website yesterday. Bad loans rose most at mid-sized lenders and rural banks.

China's banking system is grappling with rising defaults and shrinking loan profitability after the world's second-largest economy expanded at the slowest pace in 13 years. Net interest margin at the nation's 3,800 lenders contracted to 2.75 percent in the fourth quarter from 2.77 percent in the third, the regulator said.

The Purchasing Managers' Index fell for a second month in February as a gauge of new orders declined, a signal the nation's economic recovery may be losing steam, the National Bureau of Statistics and the China Federation of Logistics and Purchasing said yesterday.

Non-performing loans accounted for 0.95 percent of banks' total advances as of December, unchanged from a quarter earlier, according to the CBRC. Banks' capital adequacy ratio strengthened to 13.25 percent as of December 31, compared with 13.03 percent in September. Combined net income at the nation's banks grew 18.9 percent last year to 1.2 trillion yuan.

In 2012, the total assets of the Chinese banking industry, including commercial banks, policy banks, credit cooperatives and other financial institutions, reached 133.6 trillion yuan, up 17.9 percent, according to the CBRC.

Bad loans in Wenzhou, the eastern Chinese city hit hardest by the collapse of private lending last year, have soared to 23.86 billion yuan, from 8.6 billion yuan in 2011, China News Service reported on Thursday.