China's more than 30,000 rural credit co-operatives have reported their first aggregate profit in more than 10 years, the nation's banking regulator said Tuesday.

The co-operatives, together with a few newly established rural commercial banks and co-operative banks, realized combined profits of 10.5 billion yuan (US$1.3 billion) in 2004, the China Banking Regulatory Commission said.

A total of 26,245 such co-operatives - 81 percent- were profitable.

Rural credit co-operatives have been showing improvements in their management and profitability since the authorities stepped up reform efforts to help them resolve problems and improve their competitiveness.

The State Council, China's cabinet, approved a pilot scheme in 2003 to restructure the mostly unprofitable co-operatives, which are the major source of funds in the nation's vast rural areas.

The commission said earlier it would help the co-operatives reduce bad loans and improve management so new overseas and domestic strategic investors were able to enter the sector, but has yet to report any progress in this regard.

But it said the co-operatives' strong lending operations greatly boosted their interest income last year.

The co-operatives made new loans totalling 2.4 trillion yuan (US$289 billion) last year, 405 billion yuan (US$49 billion) more than in 2003, helping to lift interest income by an annualized 30.8 percent to 112.2 billion yuan (US$13.5 billion), the commission said.

The co-operatives cut their non-performing loans by 54.5 billion yuan (US$6.5 billion) in the past year, bringing their aggregate NPL ratio down by 6.27 percentage points to 23.1 percent at the end of last year, the commission added.

"The co-operatives' improved asset quality effectively reduced their proportion of non-interest-yielding assets, and raised their returns on assets," the commission said in a statement.

Governmental support played a major role in improving the co-operatives' profitability last year, the commission said, adding that those in all of the eight provinces and municipalities where pilot reforms took place last year ended in the black.

The co-operatives in the eight selected regions - Jilin, Shandong, Zhejiang, Guizhou, Jiangxi, Jiangsu and Shaanxi provinces and Chongqing Municipality - were granted State subsidies, tax breaks, and were allowed to swap their bad assets with central bank bills.

Co-operatives in these regions were allowed to reform their property rights schemes according to regional conditions. They can choose to adopt one of the three property rights schemes - shareholding, co-operatives or a combination of the two.

(China Daily January 19, 2005)