(Yicai Global) April 27 -- China's banks extended 27 percent more Chinese yuan-denominated loans to businesses in the first three months than they did a year ago and at a cheaper rate to support the real economy, according to the China Banking and Insurance Regulatory Commission.

New yuan loans stood at CNY10.6 trillion (USD1.5 trillion) in the first quarter, a CBIRC official said at a press briefing yesterday. Of this, new loans for private firms jumped 37 percent to CNY3.7 trillion, he added.

And the average interest rate that micro and small firms are paying was 0.38 percentage point lower than the same period last year, the person said. Borrowing by private firms was at a rate 0.06 percentage point lower on average, he added.

The banking sector has managed to keep risk indicators within a reasonable range despite the increased issuance of credit. Outstanding non-performing loans gained CNY125.9 billion as of March 31 from the beginning of the year to CNY3.9 trillion (USD563.3 billion). This resulted in a bad loan ratio of 1.68 percent, which was 0.09 percentage point lower than the same period last year.

Profit growth at banks, though, is slowing, expanding just 1.3 percent in the three months ended March 31 year on year to CNY667.9 billion (USD96.5 billion), much slower than last year’s 7.4 percent clip, according to CBIRC data.

Slowing profits impact banks' ability to replenish their capital, and this is not helping the provision of sustained financial support to the real economy, Dong Ximiao, chief researcher at Merchants Union Consumer Finance, told Yicai Global. The quality of some loans to micro and small firms can be affected if previous supporting policies are scrapped.

The property market remains sluggish, Dong said. So housing loans need to be adjusted quicker. For example, the rates on loans taken out by people to buy second apartments can be lowered, he added.

Editors: Dou Shicong, Kim Taylor