Xiang forecast that the asset quality of A-share listed city commercial banks (Bank of Beijing Co Ltd, Bank of Nanjing Co Ltd and Bank of Ningbo Co Ltd) will remain superior to that of joint-stock commercial banks due to effective management and geographical advantages, assuming that no regional financial risks arise.

Study identifies worst sectors for NPLs

Nonperforming loans may eclipse the level of 2008

"But nationwide, the risk management capability of a large proportion of city commercial banks is lower than the average level of listed banks. We cannot rule out the possibility that some city commercial banks will have serious problems during the course of business operations," he said.

The problems may occur in city commercial banks that aren't located in provincial capitals, as well as those in underdeveloped regions where local banks' risk controls are weaker than those of developed regions, he added.

While acknowledging the performance of A-share listed city commercial banks, Xiang raised doubts about the NPL figures of other city commercial banks, saying that many had concealed the actual quality of assets through inadequate disclosure of information.

A financial expert who declined to be identified said that some unlisted city commercial banks reported only one-third of their real NPLs to banking regulators.

Ni Jun, a financial analyst at Shanghai-based Greenwoods Asset Management Ltd, said that city commercial banks have close ties to local government financing vehicles, which are set up by local governments to raise funds primarily for infrastructure and real estate development projects.