The Chinese banking system is facing growing pressure from an increase in non-performing loans and an expected decline in profits in the first half of this year, due to a faster-than-expected economic slowdown as well as a narrowing net interest margin, a leading Chinese banker has warned.

"But the risks are still controllable, and it is impossible that a systemic crisis could break out in the banking sector," Xiao Gang, chairman of Bank of China Ltd, said at a news conference on Thursday during the two-day China-Japan Entrepreneurs Exchange Meeting of the Boao Forum for Asia.

In the first half of this year, especially in the first four months, China's slowing economic growth added to credit risks in the banking system, thanks to gloomy corporate earnings, especially in the property sector, which affected local governments' repayment ability, said Xiao.

"For the banking sector, the most important consideration is the quality of loans, as almost half of commercial banks' assets currently are loans," he added.

According to Chetan Ahya, Asia-Pacific economist at Morgan Stanley, China's debt-to-GDP ratio has increased from 40 percent to 50 percent.

Boosting economic growth by relaxing monetary policy and using stimulus measures is not an ideal way to maintain healthy and long-term development, Ahya said at the Shanghai Lujiazui Forum last week. "China needs to change the growth pattern."

In the first quarter of this year, China's GDP growth rate slowed to a three-year low of 8.1 percent, due to weakened demand in global markets amid the deepening eurozone debt crisis, which has led the government to implement policy fine-tuning to stimulate the economy.

The People's Bank of China decided to cut one-year interest rates by 25 basis points on June 8, and again on Thursday.

The central bank announced it would increase the deposit rate's upper limit by 10 percentage points, as well as lowering the loan rate's lower limit by 10 percentage points.

"The expanded range in which interest rates can fluctuate has increased the pressure on commercial banks' operations, but this influence will just be felt in the short term," said Xiao.

"China's commercial banks have confidence to deal with the increasing amount of non-performing loans, as the amount of loan loss provision - more than twice of the amount of lent money - is sufficient," Xiao said.

China's commercial banks are preparing for accelerating overseas business expansion as their domestic market prospects are influenced by cooling economic growth.

"Our bank plans to open a branch in Fukuoka, and increase its workforce in Japan," Xiao said.

chenjia1@chinadaily.com.cn