BEIJING (AP) _ A banking industry plagued by bad loans, ruinous real estate speculation, poor profitability.

Japan? The United States? No. This time, it's China.

China's banks are among the world's largest. They hold more savings than any banks in other countries. And they have problems to match.

Highlighting China's financial troubles, the central bank announced last month it had shuttered the nation's second-largest trust and investment firm because of illegal deals.

China Agribusiness Development Trust and Investment Corp., which was closed Jan. 4, lost billions of dollars through real estate speculation and other schemes. It was among several trust and investment firms to be investigated or punished by the People's Bank of China, the nation's central bank, for testing the patience of China's financial regulators.

``The situation is probably much worse than in Japan or the United States,'' says Ken Courtis, chief Asian economist for Deutsche Bank Group. ``What the government is prepared to do about it, no one knows.''

In recent months, the central bank has closed hundreds of smaller financial institutions. It recently cracked down on banks that were exploiting regulatory loopholes to lend money for illegal stock market investments.

Its biggest headache is the billions of dollars in loans that may never be repaid to the banks because the borrowers are unprofitable state-owned enterprises doomed to downsize or shut down altogether.

The situation is not improving: The State Statistical Bureau recently reported that losses at state-run companies swelled in 1996 to the equivalent of $6.38 billion, up 38.8 percent from the previous year.

Fearing that widespread layoffs could lead to riots, the government has limited bankruptcies to selected enterprises in designated cities.

But many firms are finding ways to write off their debts to banks and to their business associates and then resume operations without improving their management, the Communist Party newspaper People's Daily lamented recently.

``If allowed to blow unabated, this bankruptcy wind would soon drain state property and impair healthy national economic growth,'' it said.

Like just about everything else in the world's most populous nation, China's banking system is big. At $458 billion, personal bank deposits grew 30 percent last year and are the largest in the world. Foreign exchange reserves reached a gargantuan $105 billion by the end of last year.

In the past few years, China has been converting its state-owned banks into commercial institutions. It has reorganized its state policy and specialized lending banks and ordered all to raise their reserves against bad loans.

Because of limited disclosure requirements, the banks' exact exposure to unprofitable state firms is unknown. Since the banks have replaced the government as the key conduit for financing, however, it is thought to be substantial.

Compounding the potential for losses, in addition to debts owed to banks, many state firms also owe money to other state firms.

And, similar to the banking crises in Japan and the United States, the bankers themselves are under fire for failing to police themselves.

The central bank announced Jan. 14 it had closed China Agribusiness Development Trust and Investment Corp. for the sake of ``financial order and stability.''

The brief announcement did not explain what illegalities CADTIC was accused of. A nonbank financial institution set up in 1988 to channel domestic and foreign funds into the agricultural sector, it appears to have strayed far from its original mission.

A report in Hong Kong's English-language newspaper South China Morning Post cited unidentified sources who said the firm was allegedly involved in smuggling, tax evasion and ruinous real estate speculation.

The extent of CADTIC's losses hasn't been made public. Creditors include both domestic Chinese investors and foreign entities such as the World Bank and the Asian Development Bank.

CADTIC's assets are to be redistributed to better behaved banks. But it is unclear which of its clients will be protected and which may lose their investments.

In a Jan. 17 report on CADTIC's closure, the credit rating agency Moody's Investors Service said the central bank was likely to favor some defaults as a way of forcing discipline on an increasingly chaotic system.

``Regulatory support for institutions in trouble _ both banks and particularly nonbanks, will continue to be unpredictable and will overall be even less likely,'' it said.

Acknowledging the progress Beijing has made in reconstructing its banking industry since economic reforms began in the late 1970s, the Switzerland-based Bank for International Settlements last year invited China, along with several other Asian nations, to join its exclusive ranks.

The need to meet BIS standards gives China's banks even more reason to improve their financial disclosure and profitability.

``There are clear indicators that banking is moving in a positive direction. It is more regulated, more institutional. You see fewer erratic or irrational practices,'' said Laurence Brahm, a Beijing-based business consultant who has authored a book on China's banks.