Bad loans on the books of Hong Kong banks continued a steady trend of improving asset quality for the sector in the final quarter of last year, despite a surge in credit-card defaults, the Hong Kong Monetary Authority reported yesterday. In its first quarterly bulletin for the new year, the HKMA said the non-performing loan ratio for retail banks improved to 4.74 per cent of total advances, versus 5.11 per cent in the third quarter. Mortgage loans showed a delinquency ratio - measured by amounts overdue for more than three months as a percentage of total lending - of 1.22 per cent versus 1.28 per cent in the third quarter. 'Notwithstanding the economic slowdown, with low nominal interest rates and [in many cases] lower spreads making debt servicing more affordable, the retail banks' asset quality continued to improve,' the HKMA said. However, credit-card debt showed a different trend and there were growing concerns over deteriorating asset quality in banks' credit-card portfolios, it said. The annualised charge-off ratio in the final quarter earlier reported by the HKMA was up to 8.27 per cent, from 5.33 per cent in the third quarter. 'The deterioration appears to have been due primarily to the sharp increase in the number of personal bankruptcies, but was also influenced by a change in policy by a number of banks which are now charging off accounts earlier - when a bankruptcy petition is presented, rather than when a bankruptcy order is issued,' the HKMA said. The poor demand for loans in Hong Kong continued, with total loans declining by 2.7 per cent in the final quarter.