City commercial banks' nonperforming loans and NPL ratios continued to rise in the first quarter, but their situation was still better than that of listed banks.

Study identifies worst sectors for NPLs

Nonperforming loans may eclipse the level of 2008

As of March 31, the balance of NPLs for city commercial banks rose to 61.92 billion yuan ($9.98 billion) from 54.8 billion yuan at the end of December. The average NPL ratio increased to 0.94 percent from 0.88 percent, according to the China Banking Regulatory Commission.

As of March 31, the balance of NPLs for 16 A-share listed banks hit 517.9 billion yuan with an average NPL ratio of 1.01 percent, said Ernst & Young LLP in a report.

Steven Xu, partner of EY Financial Services, said city commercial banks stripped out bad assets during the banks' restructuring and shareholding reforms in recent years, which contributed to the good performance of city commercial banks in terms of financial risk management during the first quarter, as well as for 2013.

Xu noted that last year, NPLs for listed banks were concentrated in the Yangtze River Delta and Pearl River Delta. For city commercial banks outside these regions, regional financial risks were relatively low.

The banks' solid foundation in local areas also helped limit their bad loans.

"Compared with large nationwide commercial banks, city commercial banks have a deeper understanding of local companies and deeper long-term cooperation with the companies. This advantage helps city commercial banks avoid or leave poorly performing sectors," said Xiang Qi, vice-president of research for CITIC Securities Co Ltd.