* Most of China's top 5 banks beat profit expectations
* Net interest margins seen improving this year
* BoC only lender among top 5 with growing NPL ratio (Recasts, adds comment from bank officials)
SHANGHAI, March 29 (Reuters) - China's top five lenders have raked in bigger annual profits and expect business conditions to continue improving this year, as Beijing's crackdown on shadow financing and high leverage makes core banking more profitable.
The strong performance by the country's top-listed banks underscore how conservative lending practices and increased recognition of bad loans is helping shore up results at larger commercial banks, after years of decline in margins brought on by successive interest rate cuts.
Bank of Communications Co Ltd (BoCom) reported on Thursday a 2017 net profit that beat consensus estimate, in line with most other large state-owned lenders that recorded their best annual profit growth in years on better margins.
"This year, things will improve," said BoCom CFO and Vice President Wu Wei, adding that net interest margins (NIMs) - a key measure of profitability for banks' most basic lending business - "should improve after stabilization".
Bank of China Ltd's (BoC) Vice President Zhang Qingsong agreed.
NIMs for BoCom, China's No.5 listed bank by assets was at 1.58 percent by end-December, from 1.57 percent at end-September, while they rose slightly for BoC.
Asset quality is expected to improve in 2018, BoC's chief risk officer Pan Yuehan said at an earnings press conference.
BoCom's net annual profit rose more than 4 percent to 70.22 billion yuan ($11.17 billion), versus an average estimate of 67.3 billion yuan from 17 analysts polled by Thomson Reuters.
For the fourth-largest lender by assets, BoC, annual profit rose about 5 percent to 172.41 billion yuan, but it fell short of a consensus of 183.32 billion yuan.
BoC was the only among China's Big Five banks to log a higher non-performing loan ratio amid a rising percentage of bad debt from the poorer regions of Northeastern China, indicating there were challenges lurking behind the overall optimism.
Many banks will focus on "staying in good financial shape, building their customer franchises, enhancing core capabilities ... while clearly aligning with government policies such as reduced leverage" to underpin their performance this year, said John Ott, partner with Bain & Company and a leader with its Greater China financial services practice. ($1 = 6.2875 Chinese yuan renminbi) (Reporting by Engen Tham in Shanghai, Matthew Miller in Beijing, Shu Zhang in Beijing and Julie Zhu in Hong Kong; Editing by Himani Sarkar)