UPDATE 1-Chinese banks' bad loans drop, focus now on strategy

(Recasts with details, quotes)

BEIJING, Jan 18 (Reuters) - China's banking regulator on Friday laid out its priorities for 2008, saying that it would focus on helping commercial banks sharpen their operations by improving their strategic planning, innovation and services.

In a summary of the proceedings of the China Banking Regulatory Commission's annual work conference, a reference to further efforts to do away with bad loans, regularly highlighted in past years' work plans, was conspicuous by its absence.

Instead, at a time when many U.S. and European banks are preoccupied by subprime mortgage woes, the agency's chairman Liu Mingkang offered a plan to help Chinese banks become more competitive in an increasingly open market.

"Five years ago, the state banks were technically on the verge of bankruptcy, but now they are large commercial banks with international recognition," the work report cited Liu as saying.

"Through regulatory guidance and support, we will strive to realise a tangible and noticeable improvement in the banking industry's competitiveness within three years," he said.

Beijing has spent some $500 billion over the past decade to clean up its banking sector, shifting their bad loans to special asset management companies and injecting tens of billions of dollars into a few key banks, which were subsequently restructured and went public.

The four biggest banks that have undergone that reform -- Industrial and Commercial Bank of China (601398.SS: Quote, Profile, Research, Stock Buzz)(1398.HK: Quote, Profile, Research, Stock Buzz), Bank of China (3988.HK: Quote, Profile, Research, Stock Buzz)(601988.SS: Quote, Profile, Research, Stock Buzz), China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz)(601939.SS: Quote, Profile, Research, Stock Buzz) and Bank of Communications (3328.HK: Quote, Profile, Research, Stock Buzz)(601328.SS: Quote, Profile, Research, Stock Buzz) -- had an average non-performing loan ratio of just 2.87 percent at the end of 2007, Liu said.

Major banks, which the CBRC classifies as the big state-owned lenders plus 12 joint-stock ones, saw the ratio fall to 6.7 percent at the end of 2007, compared with 7.51 percent a year earlier and 23.6 percent at the end of 2002.