A quarterly survey of more than 3,000 Chinese banks has painted a dour picture of the sector during the past three months, with several indicators falling to historical lows. The People's Bank of China bankers survey for the third quarter showed sentiment on loan demand continued to plummet beyond the lows of the global financial crisis. The central bank's loan demand index hit 56.7 per cent, down 3.7 percentage points from a quarter earlier and about 10 percentage points year on year. In the last quarter of 2008, the index chinned above 60 per cent. The bank sector sentiment index fell slightly quarter on quarter to 62.2 per cent but that was also a full 10 percentage points down from a year ago. As a proxy to the economy, growth in profits at China's biggest banks have followed the same downward trajectory as China's gross domestic product growth, only the fall has been far sharper with some banks hitting flat or even negative profit growth in the second quarter of the year. China's economy grew 7 per cent in the second quarter but the International Monetary Fund has projected that full-year growth could slow to 6.8 per cent, signifying what could be a quicker cooldown in the second half of the year. China posted 7.4 per cent growth last year. Despite some of the most harrowing results in years for the first half, the bank profits index between July and September picked up on the previous quarter to 64.5 per cent but was still more than 11 percentage points below the reading a year ago. At Industrial and Commercial Bank of China, within one year profit growth tumbled from 7 per cent year on year in the second quarter to slightly negative. To make up for losses in interest-generating businesses, banks have been innovating on fee income from credit cards, securities and custodian businesses. "Capital market-related fees are also growing quickly but are more volatile, reflecting the high volatility of local capital markets, particularly the A-share market," a report from Barclays said. Some 62 per cent of bankers polled by the central bank in the third quarter said the economy was "cool", up 2.7 percentage points from the previous quarter while the economic confidence index fell 2.8 per cent to a low 40.6 per cent. The survey does not gauge sentiment on asset quality, which has become the biggest worry for banks this year. The average non-performing loan ratio for commercial banks at the end of the first half hit 1.5 per cent, up from 1 per cent 18 months earlier. Loan demand sentiment at small and medium-sized businesses was stronger than at bigger firms, the survey showed, but analysts have pointed out that so too were the asset-quality risks. "While SMEs are still the primary stress point, we worry that the faster-than-expected NPL increase might imply more spillover risk to [state-owned enterprises]," according to a report from CLSA Asia-Pacific Markets. The report from the brokerage was titled "From bad to worse", capturing the overall sentiment in the wake of a disappointing interim reporting season.