China's banks reduced fraud and other irregularities by 63 percent from a year earlier in the first half as they tightened internal controls and improved risk management after public share sales.

Domestic banks uncovered 293 cases of fraud, with about 30 percent involving at least 1 million yuan ($132,000), the China Banking Regulatory Commission said in a press release. Banks also reported thwarting 76 fraud attempts.

Banks in Asia's second-biggest economy are overhauling their management and technology to cast off a legacy of bad debt caused by decades of state-directed lending. 

The regulator aims to reduce the number of irregularities by a fifth this year, Hao Aiqun, director of the Banking Supervision Department, said during a press conference in Beijing. Probes in the second half will focus on Agricultural Bank of China and rural cooperative unions.

Most irregularities occur at the grass-roots level, with misused funds directed toward startup companies, stock investment and lottery tickets, the regulator said.

Rule Breaches, Fines

China's auditors said in June they uncovered breaches of rules and irregularities involving 15.6 billion yuan after investigating the 2005 financial results of three of the nation's seven largest banks. Bank of China Ltd., China Merchants Bank Co. and Bank of Communications Ltd. approved real estate loans and mortgages worth 5.1 billion yuan based on faked documents, and failed to adhere to government policies on credit approvals.

The banks were also among eight punished in June for failing in their scrutiny of loans allegedly illegally invested in stocks. Lending to China Nuclear Engineering Group and China Shipping (Group) Co. was used to buy new shares.

China must set up an orderly system to punish and fine perpetrators, making the cost of committing wrongdoing higher than the potential gains, Liu Mingkang, the nation's top banking regulator, said last month.