According to Credit Suisse Group, loan losses at these lenders could swell to as much as the equivalent of 60 per cent of their equity capital, Bloomberg reports.
The organisation cited failure to repay debts by both local governments and real estate companies as reasons for the estimation, claiming non-performing loans are likely to escalate to between eight and 12 per cent of total debt over the coming years.
Such movement would result in losses amounting to between 40 and 60 per cent of Chinese banks' equity, the group explained.
Sanjay Jain at Credit Suisse - which was founded in 1856 - wrote: "Any sustained outperformance will be likely only after banks effectively tackle issues related to asset quality."
The industry figure added 2012 and 2013 profit estimates are likely to be as much as 25 per cent greater than the levels that will actually be achieved.
By Asim Shah