Slower profit growth among banks also added to concerns over the worsening asset quality.

In the first quarter, the net profit growth of China Citic Bank, Ping An Bank, Agricultural Bank of China and Bank of China all fell to below 10 percent.

"More than 80 percent of the asset quality problems caused by small and medium enterprises were concentrated in the Yangtze River Delta, which was the hardest hit region by this round of economic restructuring," Minsheng Bank said in its first quarter results.

Minsheng's NPL ratio for the SME sector jumped by 86 basis points at the end of 2012 from six months earlier.

Last month, Standard & Poor's warned that China has to fend off rising bad loans after keeping recession at bay, amid media reports that Chinese lenders' NPL ratios increased in the first quarter to 0.99 percent.

China Business News reported in April that by the end of March, outstanding NPLs stood at 524.3 billion yuan, up 20.7 percent year-on-year, from the beginning of the year, citing figures from the China Banking Regulatory Commission.

The amount of bad loans is likely to continue rising, the newspaper quoted Shang Fulin, chairman of the CBRC, as saying.

By the end of 2012, outstanding NPLs rose 64.7 billion yuan to 492.9 billion yuan compared with three months earlier, while the NPL ratio fell 0.01 percentage points to 0.95 percent, according to CBRC data.