Chinese banks are likely to continue facing profitability and capital pressures in the near term, said Fitch Ratings.
The rating agency expected that the macroeconomic slowdown will continue to result in weakening asset quality and suppressed revenue growth, while net interest margins will remain constrained by earlier interest-rate cuts.
The effects on lending rates of the five rounds of interest-rate cuts since November 2014 are expected to last in the coming months.
Worsening asset quality, such as non-performing loan (NPL), will impair potential profit growth. The year-round NPL ratio is likely to be higher, as Chinese banks often provision more aggressively in the second half of the year, Fitch forecast.
China's equity markets may slow the banks' fee growth, as the market turmoil since July triggered concerns over the slowing economy may reduce investment demand.
The agency expected the state banks will focus more on their overseas expansions to mitigate the impact from the domestic economic slowdown.
China has cut interest rates, reduced reserve requirement ratio, and removed a 75-percent loan-to-deposit ratio stipulation to help boost economic growth, which may help ease some pressure on the banks but is unlikely to reverse the subdued earnings trends in the short term, Fitch said.