A bank staff member checks yuan banknotes at a bank in Lianyungang, East China's Jiangsu province, Jan 7, 2016. [Photo/Xinhua]

BEIJING - The performance of Chinese banks in the first six months of this year showed better asset quality, but the banks' lower net interest margins put pressure on their profitability, according to a recently leased report by Moody's.

"The banks' H1 performance demonstrates that regulatory measures implemented since January this year have been successful in containing financial risks and unwinding some shadow banking and interbank activities," said Nicholas Zhu, Moody's vice-president and senior analyst.

Zhu said these positive results will likely continue under the current regulatory environment, a credit positive for the banks, because such a situation would relieve the strain on their capital and funding positions, although at the expense of profitability.

Moody's also pointed out that banks that have relied on market funds to support the previous phase of their asset expansions will likely face lower profitability.

The analysis was contained in the report on the H1 2017 results of 16 banks rated by Moody's. These banks account for more than 70 percent of total assets for Chinese commercial banks.

The banks' average asset growth slowed markedly to 4.4 percent during H1 2017, due partly to general declines in their investment in loans and receivables. Loan growth also remained subdued, with mortgage loans under strain from tightened macro-prudential measures on property transactions.