UPDATE 1-China commercial bank bad loans reach 10-year high in December

(Adds details and comparative data)

BEIJING, Feb 15 (Reuters) - China’s non-performing loans reached a 10-year high of 1.27 trillion yuan ($195.63 billion) at the end of 2015, the country’s banking regulator reported, as the world’s second-biggest economy continues to struggle with mounting debts.

The average commercial bank NPL ratio rose to 1.67 percent at the end of December from 1.59 percent three months earlier, the China Banking Regulatory Commission said in a statement on Monday.

NPLs increased by 88.1 billion yuan over the last three months of the year, to 1.27 trillion yuan, the highest since the second quarter of 2006.

Special mention loans, referring to debts that could potentially turn sour, rose to 2.89 trillion yuan, the regulator said, an increase of 80 billion yuan from the end of September, underscoring how mounting debts have weighed on Chinese lenders in the face of slowing economic growth.

Bank profits, which have been squeezed by consecutive interest rate cuts and the ongoing liberalization of rates, increased by 2.43 percent in 2015 to 1.59 trillion yuan.

Provision coverage ratio declined by 9.62 percentage points to 181.18 percent, while the loan-provision ratio amounted to 3.03 percent, basically flat from the previous quarter, the regulator said.

The weighted core Tier One capital adequacy ratio for the sector reached 10.91 percent at the end of December, an increase of 0.25 percentage points from the previous quarter. ($1 = 6.4920 Chinese yuan renminbi) (Reporting by Meng Meng and Matthew Miller; Editing by Kim Coghill and Simon Cameron-Moore)