Profit growth at the top 10 listed mainland banks halved in the first six months compared with a year earlier, highlighting tougher operating conditions as lending profitability and fee income shrank in a weaker economy. The banks posted a combined net profit of 513.2 billion yuan (HK$627.78 billion) in the first half, a 17 per cent increase from a year ago. In the same period in 2011, growth was 34 per cent, according to global accounting firm PricewaterhouseCoopers (PwC). The accelerated pace of financial reform by the People's Bank of China, including cutting interest rates and expanding the floating band of deposit and lending rates, were the main factors that hit banks' profits, said Raymond Yung, financial services leader for China at PwC. The average net interest margin, the spread between what banks earn from lending and their funding costs, edged down in the first two quarters to 2.65 per cent at the end of June. Revenue contribution from fee and commission income fell 1.85 percentage points to 18.79 per cent. This was mainly due to tighter regulation of certain bank charges by the China Banking Regulatory Commission (CBRC). Deteriorating asset quality raised another red flag. Overdue loans, or loans not yet classified as bad, shot up by 112.88 billion yuan to 488.97 billion yuan between the end of last year and the end of June. The CBRC stipulates that systemically important banks need to keep a minimum loan-loss ratio, which measures money set aside for bad loans against total loans, of at least 2.5 per cent by the end of next year. Other banks need to meet the requirement by the end of 2016. While China's four largest commercial banks have met the mark, the other smaller banks have yet to do so.