While banks in Shanghai saw the percentage of bad loads drop during the first half of this year, the number of mortgages that are nonperforming is on the rise, banking regulators said yesterday.

The value of underperforming loans held by local banks rose 110 million yuan (US$13.8 million) to 1.66 billion yuan over the first six months of the year.

Mortgages remain one of the safest types of loan a bank can approve, however. The nonperforming loan ratio for mortgages rose 0.09 percentage points to 0.67 percent at the end of June, the local branch of the China Banking Regulatory Commission said in a statement yesterday.

Cong Cheng, a researcher at the Shanghai Public Housing Fund Management Center, suggested some speculators have stopped paying their mortgages on apartments after the government introduced measures in May to cool off the property sector, which probably lead to the rise in bad mortgage loans.

The rise won't have a major affect on the sector as mortgages are still much safer than other types of loans, he said.

The value of outstanding bad loans held by banks in Shanghai topped 49.1 billion yuan as of the end of June, down 1.46 billion yuan from the beginning of the year, the regulator said.

The NPL ratio on all loans held by banks in Shanghai, including both overseas and domestic players, sat at 2.75 percent at the end of June, down 0.32 percentage points from the start of the year.

Banks in the city also saw profit growth decline during the first half of the year.

Local commercial banks' operating profit, before discounting bad loans and assets, gained 8.3 percent to reach 21.7 billion in the first six months. The growth rate was down 11 percentage points from the same period a year ago.

Income from intermediate business rose 51.5 percent to reach 3.68 billion yuan in the first half of this year. At present, overseas players are banned from offering yuan services to Chinese. They will be allowed to tap the sector at the end of this year, CBRC chairman Liu Mingkang said.

Editor: Yan