The amount of bad loans in China's commercial banking sector increased by 11 per cent in the second quarter of the year, the country's banking regulator said on Monday, as a slowing economy continued to weigh on lenders. Commercial bank non-performing loans at the end of June amounted to 1.09 trillion yuan, up 109.4 billion yuan from the end of the first quarter, the China Banking Regulatory Commission said in a statement. The average non-performing loan ratio of the mainland's commercial banks rose 0.11 percentage point in the second quarter to 1.5 per cent at end of June, the regulator said. Mainland banks' tier-one core capital adequacy ratio stood at 10.48 per cent at the end of June, down 0.18 percentage points from the end of March, the CBRC said. The mainland's big commercial banks are setting aside more cash as they prepare for more loans turning sour. Loan loss reserves at the end of the second quarter amounted to 2.17 trillion yuan, an increase of 83.5 billion yuan over the end of the first quarter. Commercial bank loan loss provision coverage amounted to 198.39 per cent, a decline of 13.59 percentage points from the earlier quarter. Non-performing loans for the banking sector rose to 1.8 trillion yuan as of June, up 35.7 per cent from a year earlier, according to the transcript of an internal speech delivered last month by CBRC chairman Shang Fulin. He also said the banks' profit growth in the first half slowed by 13.03 percentage points from a year ago, with net profits amounting to 1.1 trillion yuan in the first six months. "In the bigger context of [China's] economic slowdown, the whole truth of the banking sector's credit risks is beginning to emerge," Shang had said. Lower profit growth will "reduce shareholder return, weaken banks' capability to supplement capital and prevent risks", he added, saying it was now the "new normal". The regulator also said the banking sector was increasing its lending to small and micro enterprises. Outstanding loans to such firms amounted to 22 trillion yuan, an increase of 15.5 per cent over the same period a year earlier.