Chinese commercial banks are expected to see an increase in non-performing loans this year amid the rising possibility of borrowers being unable to repay their loans.

With the economic slowdown, many companies have a lower cash flow and suffered a drop in net profits, which may lead them to violate loan covenants.

"The quality of banking assets is expected to decline at least until the fourth quarter, especially for small and medium-sized banks," said Mao Junhua, an analyst from China International Capital Corp Ltd.