China's banking regulator will strictly control bank loans to real estate and local governments this year to curb risks, while the industry reported that its profit rose at the fastest pace in three years in 2010.

The combined net income of the industry soared 35 percent last year to a record 899.1 billion yuan (US$137 billion), the China Banking Regulatory Commission said in its annual report yesterday.

The big five lenders - the Industrial and Commercial Bank of China, China Construction Bank Corp, the Bank of China, the Agricultural Bank of China and the Bank of Communications - boosted combined profit to 515.1 billion yuan last year, an annual 29 percent jump. The five banks are all listed in Shanghai and Hong Kong. They raised US$56 billion from sales of shares and convertible bonds last year.

There are concerns that non-performing loans could rise due to a two-year credit boom in 2009 and 2010. Banks in China extended 9.59 trillion yuan of new loans in 2009 and 7.95 trillion yuan in 2010.

The CBRC reiterated its stance to "strictly" control lending to the arms of local governments to finance infrastructure and property projects. The regulator has also raised provision requirements for banks to ward off a possible rebound in bad loans.

Banks' off-balance sheet assets, which are deemed risk-weighted, stood at 5.32 trillion yuan at the end of December 2010. That accounted for 5.6 percent of total assets carried on banks' books.

The CBRC has already asked lenders to transfer some off-balance-sheet assets back onto their books.

China shifted its monetary policy from relatively loose to prudent this year to tame inflation and ward off asset price bubbles.

Banks in China extended 1.6 trillion yuan of new yuan loans in January and February.