Just 16 banks contributed almost 93 percent of the first-quarter profits of the 50 A-share listed financial service companies tracked by Shenyin & Wanguo Securities Research Co Ltd, the broker said in a study of their financial statements.

The banks reported net profit of about 274.8 billion yuan ($41.5 billion), up about 19.7 percent year-on-year.

The remaining 34 insurance and securities companies reported a mere 21.05 billion yuan in aggregate net profit, down 22.6 percent year-on-year.

The five major State-owned commercial banks - Industrial and Commercial Bank of China Ltd, Bank of China Ltd, Agricultural Bank of China Ltd, China Construction Bank Ltd and Bank of Communication Co Ltd- alone contributed about 80 percent of the 16 banks' net profits, the report said.

All 16 banks saw profits rise, with gains of more than 50 percent for Industrial Bank Co Ltd and China Minsheng Banking Corp Ltd.

Apart from Bank of Ningbo, with 26.8 percent growth, the remaining 10 joint-equity banks and city commercial banks saw growth exceeding 30 percent.

However, growth this year for the industry fell below the average of 29 percent last year. China Construction Bank saw the biggest growth slowdown, dropping from 34.2 percent to 9.2 percent.

"State-owned commercial banks are mostly targeting larger, lower-risk customers.

"Meanwhile, small and medium-sized joint-equity banks have been lending more to smaller companies, which means larger risks. But we have seen that these smaller banks have made a good profit out of this, accounting for Minsheng's recent success," said Jin Lin, a banking analyst at Orient Securities Co Ltd.

"Securities companies and insurance companies are not doing as well as banks," Jin said.

Insurers' performances are highly related to inflation rates, Jin added. When inflation is high, trading volumes fall, as do securities companies' profits.

However, "when the deposit rate is high, some insurance products will be replaced by high interest-rate bank products. Therefore, insurance companies' profits have not been as satisfactory recently," he said.

Interest and commissions are the major sources of banks' income. The net interest income of the five State-owned commercial banks rose 2.4 percent quarter-on-quarter, with growth of 4.8 percent for joint-equity banks and 3.2 percent for city commercial banks.

As China's economic growth slows and smaller companies struggle, "commercial banks are still making good profits", said Zhang Shuguang, director of Beijing-based Unirule Institute of Economics. That isn't because of an efficient and competitive system but because of high charges and wide interest margins.

"The current one-year deposit rate is 3.5 percent while the loan rate is 6.56 percent, (a gap) rarely seen elsewhere in the world. It means that the Chinese banks can live on the interest differential and make good money," said Zhang.

According to the China Banking Regulatory Commission, the net interest margin of Chinese commercial banks was 2.7 percent in 2011.

Interest income generated 80.7 percent of all income for banks on average, reaching as high as 90.5 percent for Shanghai Pudong Development Bank.

The five State-owned banks made net interest income of 1.305 trillion yuan last year.

This situation has driven calls for market-based reform of interest rates, with experts saying that banks relying heavily on interest margins are most prone to encounter difficulties.

"Once interest rates are marketized, some banks will see their operation range narrow. They may be forced to seek a merger or even withdraw from the market," said Ba Shusong, an economist with the Development Research Center of the State Council.

shijing@chinadaily.com.cn