Mumbai: China's increasingly polarised banking sector is ripe for consolidation, especially among second tier joint stock commercial banks and less well known city commercial banks, as the weaker players in the industry succumb to the effects of intense competition, according to a report released today by Standard & Poor's Ratings Services.

The report, titled China: Top 50 Banks, acknowledges that the sector has come a long way in the past few years, thanks chiefly to government-led bailouts. The report features a peer comparison of the leading banks and expands Standard & Poor's analytical coverage of the sector almost three-fold with profiles of 34 of them, including 19 of the largest city commercial banks.

"Capitalization across the system is improving but still low. The resolution of the non performing asset problems of the major banks will further improve system capitalisation and make good the shortfall in loan loss provisions," said Standard & Poor's credit analyst Ryan Tsang.

The report says Standard & Poor's expects further progress as new loans are used increasingly productively, but adds that so far the government has succeeded in relieving only the symptoms of the sector's malaise and has yet to fully address the fundamental causes.

"China: Top 50 Banks" explores the continued role of the state and sets out Standard & Poor's view of what needs to be done to keep the country's banking reforms moving forward. It also provides a state-of-the-industry view of the sector after two years of rapid regulatory change.