Regional banks swung back to the black in fiscal 2004 as a whole for the first time since fiscal 1999 with a combined net profit of 800 billion yen, the Financial Services Agency said Tuesday.

Their average ratio of bad loans against total lending balance stood at 5.5 percent at the end of fiscal 2004, down 1.4 percentage points from a year earlier, the FSA said based on the latest earnings of the 113 regional banks.

Their average capital adequacy ratio had risen 0.4 point to 9.4 percent as of March 31.

"Each regional financial institution has promoted community-based financing, and progress in efforts to help revitalize local businesses helped reduce the bad-loan ratio," Financial Services Minister Tatsuya Ito said.

A fall in bad-loan disposal costs helped the regionals boost net profits, Ito said.

But the bad-loan ratio of the regional lenders remains high compared with major banks.

The bad-loan ratio of the nation's 11 major banks came to an average of 2.9 percent as of March 31, down from 5.2 percent a year earlier.

The majors met the government-set target of halving their bad-loan ratio to 4 percent by the end of March from the 2002 level.

The FSA has not imposed any numerical target on the regional banks and other smaller financial institutions for slashing nonperforming loans.