BEIJING - China's commercial banks are facing increased non-performing loans but the risks are generally manageable, analysts and industry insiders have said.

A report by PwC on Thursday said credit asset quality is a major challenge facing China's ten biggest banks in the first half of 2014. The balance of their non-performing loans (NPL) stood at 519.76 billion yuan (84.52 billion US dollars) at the end of June, up 15.71 percent from the end of 2013, according to the report.

The report was in line with earlier quarterly data from the China Banking Regulatory Commission (CBRC) that both the NPL balance and the NPL ratio of the country's banking sector had increased for four consecutive quarters.

At the end of June, Chinese banks had an NPL ratio of 1.08 percent, up 0.04 percentage points from the end of March. About 60 percent of the bad loans came from the manufacturing and the retail, the CBRC data showed.

But analysts noted that it is an unavoidable result as the broader economy shifts gear and the restructuring deepens.

"Under the current economic situation, the NPL will not be running at very low levels. This is consistent with the trend of the economy," said Wang Hongzhang, president of China Construction Bank.

China's GDP grew 7.4 percent in H1, compared with an annual growth target of around 7.5 percent for the full year. The government has stressed efforts to deepen reform and boost employment, while stepping up credit support for agriculture and small businesses.

Zeng Gang, an economist with a government think tank at the Chinese Academy of Social Sciences, said risk exposure in a moderate and orderly manner should be allowed to digest the unsolved problems.

A certain level of upside risks in selective industries or regions, even certain financial institutions, provided means for the market mechanism to come into play, Zeng said.

Zeng said the credit risks will rise slightly in near future in the process of economic restructuring and the absorption of overcapacity, but the risks are generally manageable.

Zhang Xingrong, an international finance analyst with the Bank of China, said China's NPL ratio shouldn't be over-interpreted as it is well below the world's average. In 2013, the NPL ratio for developed nations was 5.1 percent, while that for the BRICS, namely Brazil, Russia, India, China and South Africa was 3.5 percent.

Besides, analysts said that commercial banks in China had high levels of capital adequacy and good coverage of loss provisions, key indicators in gauging the banks' ability to absorb losses.

Some of the banks are actively innovating with off-balance-sheet activities, to contain the size of their risk assets and maintain capital adequacy, analysts noted.

Zhao Xijun, professor from the Renmin University of China, said the golden days of the banks are over with slowing asset expansion and falling profitability. "The intermediary business income has become a new growth point that many banks tap into," Zhao said.