Banks' non-performing loans are still high and not falling off yet, the Reserve Bank says in its latest Financial Stability Review. And the worst problems concern the business lending books of the smaller local banks.Non-performing loans have stayed high despite a growing local economy and low unemployment, the RBA notes. "The proportion of non-performing assets on banks' balance sheets remains close to its recent peak," it says.The good news is that non-performing loans remain "well below the levels seen in the early 1990s and those currently being experienced in many other developed countries."Non-performing housing loans rose in the most recent period because of problems with boom-time loans made in the mid- to late-2000s. The biggest sources of housing loan non-performance have been lending in Western Sydney, in 2005 and 2006, and, more recently, loans in Perth and Brisbane.But the RBA's biggest long-term concern is not housing lending. Only around 0.8 per cent of housing loans are non-performing and housing loans are backed by plentiful collateral, so lenders' losses should remain low.The RBA worries more about business loans, where non-performing loans make up 3.5 per cent of banks' portfolios. However, this non-performing share has fallen by 20 basis points since September 2010.The Review reports that business loan write-off rates since 2008 have been highest in construction, property and business services, including commercial property (see following article). The accommodation, cafe and restaurant sectors have also seen high write-off rates after some operators of pubs, clubs and hotels struck trouble.The smaller Australian-owned banks are suffering the worst problems with non-performing loans. Inside their businesses, non-performing assets are now 3.6 percent of the total book. The major banks are at 1.7 per cent and foreign banks have cut non-performing loans to 2.3 per cent.The smaller locals have also continued to shrink their business lending, while the foreign banks and Australian majors slightly expanded theirs.