Tougher environment takes toll on bank results

The economic slowdown has also taken a toll on banks' asset quality, as 12 out of 15 listed banks reported increases in both the total of non-performing loans and their NPL ratios.

China CITIC Bank International Ltd and Industrial Bank reported the fastest rise in NPL ratios, both exceeding 0.1 percentage point.

ICBC's NPL ratio went up 0.02 percentage point to 0.87 percent, while bad loans surged 7.2 billion yuan, in contrast to the 2.1 billion yuan increase in the first half of 2012.

Only two banks reported a decrease in their NPL ratios. At Agricultural Bank of China Ltd, the ratio declined to 1.25 percent from 1.33 percent at the start of the year. At Bank of China, it fell to 0.93 percent from 0.95 percent.

The asset quality of Chinese lenders deteriorated further in the second quarter, according to the China Banking Regulatory Commission. Domestic banks' NPLs rose by 13 billion yuan, the seventh consecutive quarterly increase, while total NPLs stood at 539.5 billion yuan at the end of June, with increases across all categories.

As China's economic growth decelerates and some industry sectors grapple with growing oversupply, the risks from China's recent credit boom appear to be rising to the surface for the country's banks, Standard & Poor's Ratings Services said on Thursday.

It examined the credit profiles of China's top 50 banks by asset size and assessed the credit outlook for China's banking sector.

"Rising credit costs, compressing interest margins and growing pressures on non-interest income are likely to constitute a triple-hit to bank earnings," said Liao Qiang, S&P's senior director.

"In particular, we think it is highly likely that the banks could incur substantially higher credit losses in the coming years."

The mega banks and national banks appear to be better-placed to withstand China's economic downturn, said the report. In contrast, most smaller players are likely to experience a further weakening of capitalization, and some may even witness significantly deteriorating funding and liquidity profiles, it said.

Top banks could spearhead massive market-driven consolidation, the pace of which, however, will hinge on the severity of the present credit downturn, Liao said.

Gao Changxin in Hong Kong contributed to this story.