The recent economic downturn in China is driving up bad loans, Ni said.

GDP grew 7.4 percent in the first quarter, compared with 7.7 percent in the first and final quarters of 2013.

China's GDP growth is decelerating amid weaker domestic and overseas demand as well as tight credit, wrote Tang Jianwei, a senior economist at the Bank of Communications Co Ltd, in a research report published earlier this month.

Slower credit expansion contributed to the increase of NPLs, said Ni. "The banking regulators have tightened their grip on shadow banking. As the banks have grown cautious in lending, it's gotten tougher for many companies to get loans," Ni said.

He noted that the regulatory policies on shadow banking will benefit Chinese companies in the long run, especially those in certain sectors including iron and steel, nonferrous metals, coal and shipbuilding. "Raising funds from the shadow banking system is like taking drugs. Our companies will get better if they can endure the pain of stopping," he said.

A recent Deutsche Bank AG report said Chinese banks have the means to deal with corporate bond and trust defaults. Deutsche Bank carried out a study of 2,400 corporate bond issuers and 13,000 trust products with a total credit balance of 237 billion yuan.

It found that listed Chinese banks held 37 percent of unliquidated debts in China's corporate bond market and provided 36 percent of the funding for the country's trust sector in 2013. That puts 88 billion yuan worth of bank assets at risk, but the banks are well covered by 819 billion yuan in provisions, said the report. "Therefore, small-scale corporate bond and trust defaults will not have a fundamental impact on China's banking sector," the report concluded.

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