“The state-owned banks have enjoyed a golden decade in the past 10 years,” said Ma Kunpeng, head of financials research at China Merchants Securities, before adding he thinks those days are largely over.

Faced with bad loans, withering industries and the slowest economic growth pace in decades, China’s banks need to diversify their income sources, integrate their businesses and adopt the universal banking model, Ma said.

The three banks that have already reported interim results have all turned to fees and commissions to drive their growth.

“Banks need to adapt from singularly serving as intermediaries of credit to the new demands of being integrated financial services providers,” according to Agricultural Bank’s chairman Zhou Mubing, as it released its results.

“High quality corporates are no longer taking loans as their key means of financing. They are now mainly looking to issuing bonds or equities for financing.”

“Corporate deposits are also becoming difficult to come by,” said Zhou, as they have become more highly leveraged than previously and there isn’t simply as much cash around.

“With a view to widening profit margins, we will increase sources of non-interest income by speeding up transformation and promoting innovation more vigorously,” said Communications Bank’s chairman Niu Ximing in a statement, after the bank’s results last week.

Among Chinese lenders, Construction Bank has the largest share of income that’s not earned from interest rates, at 121.86 billion yuan in the first half, or 28.6 per cent of total revenue. That’s higher than its competitors by at least 4 percentage points, the Beijing-based bank’s officials said.

Agricultural Bank had 24 per cent of its revenue from non-interest income at 61.4 billion yuan while Communications Bank’s share was 20.2 per cent at 35.19 billion yuan.

Construction Bank’s return on equity – a measure of banks’ efficiency to deliver profits against capital – was 9.1 per cent in the first half, higher than Agricultural Bank’s 8.5 per cent and Communication Bank’s 6.9 per cent.

Construction Bank now has the most diverse portfolio outside of core banking, spanning trusts, leasing, securities, funds, futures and insurance.

Its insurance unit CCB Life more than doubled its profit contribution last year while its balance sheet expanded by 70 per cent. Its trust business increased its assets by 35 per cent, delivering a 37 per cent profit growth to the bank.

The bank is also opening more branches outside of mainland China than its competitors, with 24 subsidiaries abroad including in Asia, Europe and the Americas.

“Construction Bank is starting to show some early fruits in their work to transform into the integrated and internationalised model,” China Merchants’ Ma said. “This synergistic effect of the integrated model is now starting to come through in numbers year by year.”

“If you look at Construction Bank’s subsidiary companies, the effect is now really obvious on the wealth management and custody business. We would like to see even more of these contributions on the bottom line.”

Construction Bank’s non-interest income as a share of total revenue is still some distance from the international standard of between 40 and 50 per cent, said the lender’s chief financial officer Xu Yiming.

The transformation strategy is the key counter-offensive weapon in the bank’s arsenal against the challenges facing the domestic economy and the ever more regulatory requirements posted by regulators on the core banking industry.

“It’s in integrated operations, internationalisation and the new overseas subsidiaries where we see our future - it’s how we would provide for our revenue sustainability,” he said.

As examples, he cites CCB International as coming out top in terms of the number of international mergers and acquisitions and initial public offerings advised on, among Chinese investment banks.

CCB was the only mainland bank owned investment firm to be featured on Dealogic’s latest M&A league table, which does not distinguish onshore and cross border data.

Year to date, it has advised on seven deals worth US$48 billion according to Dealogic.

But its domestic CCB Financial Leasing business, also ranked top by leasing volume, its CCB Life headed the pack in premium income amongst bank-owned insurance companies, and CCB Trust was also first among its peers in asset under management.

“These are the growing sectors. Chinese corporate volumes of M&As are very strong... If we do not compete hard, we would lose market share,” Xu said.

BOC International Holdings, Bank of China’s investment banking arm, is already projected to account for 18 per cent of the bank’s non-interest revenues, according to recent analysis from BOCI’s banking analyst Yuan Lin.

BOCI has predicted that to climb to 32 per cent of all revenues by the end of the year.