China’s big banks are all majority-owned by the state, their top executives are mostly former central bankers appointed by the Communist party and their profits are all generated using the same business model.

But even for such a homogeneous industry, their first-half profit results looked eerily similar.

Industrial and Commercial Bank of China, China Construction Bank (the world’s largest and second largest banks by market value) and Bank of China (China’s fourth-largest lender by assets) all reported net profit inc- reases of 27 per cent in the first half of the year from the same period last year.

Bank of Communications, the country’s fifth-largest lender, saw its net profit rise slightly faster – by 30 per cent.

The similarity in their business models explains the banks’ uniform profitability but also highlights the risks that are building up across the sector.

Chinese banks take in deposits from companies and citizens with very few investment alternatives but some of the highest savings rates in the world and then lend the money mostly to large state-backed borrowers to build factories, steel mills and real estate.

The vast majority of bank profits come from the difference between the interest rate they have to pay depositors and the rate they charge borrowers – a generous spread that is set by the central bank in order to protect the banks from cut-throat competition.

This business model is often referred to in China as “eating capital” because it encourages banks to lend as much as they can until their balance sheets are eroded and they have to return to the capital markets for funds in order to meet regulatory requirements.

“This is not a sustainable business model over the long term,” says Tom Orlik, an economist at Stone & McCarthy in Beijing. “But as long as you believe in the China growth story and as long as the government doesn’t liberalise interest rates or allow foreign competitors to take a large share of the market then the banks will continue to be the geese that lay the golden eggs.”

China’s “big five” state-controlled banks – including ICBC, CCB, BOC, BoCom and newly listed Agricultural Bank of China – earned almost Rmb274bn ($40bn) between them in the first half of the year.

Analysts expect earnings to moderate in the second half of the year but still expect combined net profit growth for the whole year above 20 per cent.

However, over the longer term the same uniformity that allows China’s large banks to reap similar profits in good times will mean exposure to the same dangers and risks if things start to turn ugly.

An unprecedented doubling in new loans last year from 2008 has been described by some economists as the greatest financial easing in history.

Credit conditions remain far looser than in earlier years although the government has tried to slow lending growth since the start of the year.

Even top Chinese bankers are quick to admit that not all of the lending in the past two years was to viable, creditworthy projects and that a significant portion may never be repaid.

Stone & McCarthy estimates that nascent bad loans to local governments, real estate projects and redundant sectors of the economy could raise the banking industry’s overall non-performing loan ratio from the current 1.3 per cent to about 7.9 per cent in the next two or three years.

In a more extreme scenario, in which housing prices fall further than expected and local government defaults rise, the NPL ratio could rise by about Rmb5,400bn, to 13.4 per cent of total loans.

A decade ago, following an earlier credit-fuelled stimulus package, China’s financial system was largely insolvent, with an official NPL ratio above 30 per cent prompting a banking crisis that Beijing has still not properly cleaned up.

Since the end of last year, the Ministry of Finance has rolled over Rmb720bn worth of 10-year, non-transferable bonds that were given to ICBC, BOC and CCB in exchange for a chunk of their bad loans 10 years ago.

With a few pen strokes Beijing has delayed the reckoning for its previous bank bail-out by another decade but in 10 years the banking sector is likely to be burdened with at least one more pile of bad loans.

In the meantime, Chinese lenders will continue to turn to the government and to capital markets to satisfy their ravenous appetite for fresh capital.