"The current production activities of small and medium-sized enterprises continue to shrink, as the macro economy remains at a low ebb. Some firms with excess production capacity have already gone bust, or are facing great difficulties－and all this is affecting the asset quality of the banks."

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City-based commercial banks lead in profit growth in Jan-Sept period

Chinese banks present a divided picture with regards to the January-September profit growth.

While large State-owned commercial banks announced net profit growth of less than 1 percent, city-based commercial banks listed on the Shanghai and Shenzhen stock exchanges posted double-digit growth in their net profit.

Headquartered in Nanjing, Jiangsu province, Bank of Nanjing Co Ltd recorded a 24.48 percent growth in net profit. Bank of Ningbo Co Ltd and Bank of Beijing Co Ltd posted net profit growth of 16.06 percent and 12.26 percent, respectively.

Statistics showed that non-credit assets accounted for 52 percent of the total assets for city-based commercial banks during the period.

Analysts said city-based banks are more flexible in terms of asset allocation, compared with State-owned banks. City-based commercial lenders are able to adjust their asset pricing ability amid China's economic downturn and select clients that provide higher returns, according to a PricewaterhouseCoopers report released in September.

Some of the city-based lenders are also seeking to build a comprehensive platform that can provide diversified financial services, including insurance, funding, consumer finance, asset management and financial leasing, the report said.

State-owned commercial banks, on the contrary, continued to suffer a slowdown in profit growth in the same period.

Among the four largest State-owned lenders by assets, China Construction Bank Corp took the lead by posting a 0.66 percent growth in net profit, while Bank of China Ltd ranked last with a 0.31 percent growth.

Zhao Xijun, deputy dean of the School of Finance at the Renmin University of China, said with the fall in overall lending rates and a continued increase in banks' costs of debt, looking for new engines of profit growth has become a major challenge for large commercial lenders.