A new report by PricewaterhouseCoopers throws more fuel on the fire of worries that China’s banking industry is vulnerable to a market downturn.

A new report by PricewaterhouseCoopers throws more fuel on the fire of worries that China’s banking industry is vulnerable to a market downturn, saying that bad loans – or non-performing loans – have surged at China’s 10 largest listed banks in the half-year to end-June.

The report comes shortly after the Chinese central bank injected RMB500 billion ($81.4 billion) into the five largest banks in the country.

“The overall balance of NPLs at the top ten listed banks grew by RMB70 billion in the first half of this year,” Raymond Yung, PwC Financial Services Leader for China, said in a statement. “That compares with RMB73billion for the whole of 2013. Total overdue loans also exceeded NPL balance by RMB 280 billion in June 2014,” he said.

The PwC report also shows that for the 10 banks (see below for list), net profit in the first half of this year was RMB641 million, a 10 per cent year-on-year increase. Several of the banks provide wealth management as part of their offerings. In the previous year, PwC said profit growth was around 15 per cent, year-on-year. The organisation showed this publication a chart showing a clear, and pronounced, deceleration in percentage profit growth from 2011.

The report said that while non-performing loans were a challenge for the banks, interest income provided a “more positive picture”. Together, the banks earned more than RMB2 trillion in 1H14 - up over 16 per cent year on year.

“There has been welcome growth in loans to customers and deposits with the central bank,” Margarita Ho, PwC China Financial Services Partner. “But the most notable growth was in interest from investment and interbank activities, which increased by nearly 30 per cent and 20 per cent respectively,” she said.

Another feature of the latest China Banking Newsletter from the professional services firm is the emphasis on supplementing Tier One capital through the issuance of preference shares. While most of the banks intend to increase their capital in this way, banks also need to look at efficient use of capital, PwC said

“The capital structure of commercial banks in China is quite simple,” Charles Chow, PwC China Financial Services Partner, said. “The channels for supplementing capital are also rather narrow,” he said.

The banks:

Industrial and Commercial Bank of China
China Construction Bank Corporation
Agricultural Bank of China
Bank of China Limited
Bank of Communications Company Limited
China Merchants Bank
Shanghai Pudong Development Bank
Industrial Bank Corporation Limited
China CITIC Bank
China Minsheng Banking Corporation Limited