An employee of the Industrial and Commercial Bank of China Ltd (ICBC) counts money at one of the bank's branches at the Shanghai Free Trade Zone in Pudong district, in Shanghai in this September 24, 2014 file photo. [Photo/Agencies]

Domestic financial institutions are gearing up for broad reform as the central government moves to rebalance the economy and create a more resilient banking sector, said PricewaterhouseCoopers in a latest survey.

Interviews were conducted in five major cities at the end of 2014 and in early 2015 with 44 chief executive officers and senior executives of banks and non-bank financial institutions including trust companies, peer-to-peer lenders, and Internet finance organizations.

"The respondents to our survey accept that they are going through a period of significant risk and change … Most feel that nonperforming loans will rise and the situation will be risky, but manageable," said Raymond Yung, financial service leader of PwC China, in Beijing on Tuesday.

He said that China's banks have, by international standards, made relatively large loan-loss provisions, which could cover several years of write-offs at current rates.

As of Sept 30, nonperforming loans in China jumped to 766.9 billion yuan ($123 billion), rising 36 percent from the previous year. During the same period, the NPL ratio for commercial banks increased from 0.97 percent to 1.16 percent, according to the China Banking Regulatory Commission.

Yung expects that the problem will worsen in 2015 and the actual amount of NPLs and the NPL ratio will largely depend on liquidity and property prices.

The survey found that a high risk of bad debts is concentrated in energy-intensive businesses and sectors coping with overcapacity while small and medium-sized enterprises are identified as the epicenter of problem loans.

Although eastern coastal areas were most affected, the problem is spreading and will continue to spread from Jiangsu and Zhejiang provinces to western areas including Sichuan province, said Jimmy Leung, banking and capital markets leader of PwC China.