Fitch: Chinese banks' balance sheet growth a concern

The rapid first-half expansion of Chinese banks' balance sheets amid a deteriorating operating environment is a concern, Fitch Ratings said in a report on Wednesday.

The first-half results of Chinese banks showed that slowing economic growth and declining corporate profitability have begun to take a toll on asset quality and earnings, Fitch said.

Yet despite this deterioration, Chinese banks continued to expand their balance sheets at a brisk pace, with system assets rising 11.9 percent, on a non-annual basis, in the first half, making it the second-fastest first half on record, it said.

"Such an aggressive expansion at a time of weak global and domestic economic fundamentals has the potential to lead to large loan repayment problems, and could ultimately undermine solvency," the report said. "The first-half year data indicate that this process may now be under way, albeit in the very early stages."