Sluggish profit growth in the manufacturing sector has prompted Chinese banks to look to food, healthcare and information technology industries to increase revenue.

Apart from a slowing economy, increasing bad debts have also hit lenders, according to Reuters.

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A senior Bank of China (BoC) loan officer said the bank would continue to assess risk on a case-by-case basis, "but healthcare and high-tech electronics will be a focus."

According to the Industrial and Commercial Bank of China, manufacturing and wholesale accounted for 80 percent of non-performing loans in the second quarter, Reuters said.

More bad loans are expected to come from the shipping and steel sectors this year, which would result in a further increase in non-performing loans.

In response to this trend, China's banks are shunning their usual borrowers in favor of sectors that have high potential for growth.

The Agricultural Bank of China, for example, is doing less business with shipping and commodities companies, reducing loans by around US$6.4 billion (39 billion yuan).

Some banks are shifting their focus to other services, such as financial leasing, trust lending and asset management.

Others like BoC are tapping into their overseas branches to serve domestic clients, taking advantage of higher interest margins.

"As lending conditions continue to tighten domestically, we're also helping borrowers seek better terms abroad," Reuters quoted the BoC loan officer as saying.

The government may set up obstacles to the banks' latest strategy because struggling industries would suffer as a result of cuts on loans.

But financial experts say the extent of China's problem with bad debts leaves the government with little option but to give banks more room to adapt to new conditions.

Luminance Global Fund's Roshan Francis Padamadan warned, "Misdirected lending is the biggest bane of banking, because it might lead to credit losses and ultimately they'll have to write off those losses."

China's bad debts hit a three-year high in June.

Kyle Bass of Hayman Capital, speaking at an investment conference in May, said that China's leaders were fully aware of the risks to the economy and restructuring its banking system was one of the measures they planned to take to deal with the problem.

TagsBank of China, Industrial and Commercial Bank of China, Agricultural Bank of China