SHANGHAI - A BANK of China official warned the number of bad loans on commercial banks' books could rise in 2009 as they face government pressure to lend more to spur economic growth, state media reported on Friday.

'Bad loans are very likely to grow because major banks have pledged to aggressively increase new loans,' Bank of China vice-president Zhu Min was quoted as saying in the China Securities Journal.

Beijing has relaxed monetary policy as part of measures to cushion the economy during an economic slowdown. Other measures include removing limits on commercial lending and encouraging banks to loan more to help companies.

The central bank announced four interest rate cuts since mid-September, in a signal that it would pull out all the stops to boost slowing growth.

But pessimism over the outlook of China's economy remains despite government efforts, Mr Zhu said. He predicted China's annual economic growth will fall to 4.8 per cent in the fourth quarter, down from nine percent in the third quarter.

'With sagging economic growth, banks are indeed facing the problem of non-performing assets next year,' Mr Zhu told the newspaper.

However, Mr Zhu said despite the problems accompanying increased bad loans, it would not become a serious threat because Chinese banks have improved their profitability and risk-control.

China's commercial banks had an overall non-performing loan ratio of 5.49 per cent at the end of September, down 0.67 percentage point from the beginning of this year, according to China Banking Regulatory Commission figures.

Commercial banks' bad loans totalled 1.27 trillion yuan (S$282.19 billion) as of the end of September, down 3.02 billion yuan since the start of 2008, the regulator said previously. -- AFP