Lenders' net income in China rose 39 percent last year to 1.25 trillion yuan ($178.4 billion), the fastest growth in at least four years, the country's banking regulator said on Tuesday.

The China Banking Regulatory Commission said the increase was driven by a rise in credit-based interest-generating assets, improved operating efficiency and good controls on credit risks.

"Basically stable interest rates" also contributed to profit growth, it said.

Interest income accounted for 66.2 percent of the total income of these institutions, which include policy banks, commercial banks, foreign lenders and rural credit cooperatives.

Investment earnings provided 18.5 percent, while revenue from fees and commissions contributed 14 percent.

Banks extended 7.47 trillion yuan in new loans last year, down 6 percent year-on-year. But tight monetary policy that aimed to soak up liquidity and curb inflation drove up lending rates, while banks' deposit rates were not allowed to be higher than the benchmark rates.

The CBRC said it will maintain an "appropriate" pace of credit growth in 2012, while guiding banks to lend more to small enterprises, agriculture-related sectors and key infrastructure projects.

But it said that banks must do more this year to avert the risks of loans to local government financing vehicles and the real estate sector.

The agency said there will be "difficulty" in holding the line against risks, since "China's banking reform and development have entered a key period".

Outstanding non-performing loans reached 1.05 trillion yuan at the end of 2011, with an NPL ratio of 1.77 percent.

The outstanding NPLs of commercial banks stood at 427.9 billion yuan, with an NPL ratio of 0.96 percent, down 0.17 percentage point from a year earlier but up 0.01 point from the third quarter of 2011.

The provision coverage ratio for gross non-performing assets was 278.1 percent, up 60.4 percentage points year-on-year. The average capital adequacy ratio was 12.71 percent for commercial lenders.

The risks of lending to Chinese property developers are rising as many have high leverage ratios and face a liquidity squeeze amid falling home prices, Bloomberg News quoted Liu Mingkang, former chairman of the CBRC, as having said last week.

At the end of 2011, lenders' total assets reached 113.3 trillion yuan, up 18.9 percent year-on-year, the CBRC said.

wangxiaotian@chinadaily.com.cn