BEIJING, April 8  -- Against the backdrop of an economic slowdown, Chinese banks face the challenge of fine-tuning their loan business to strike a balance between loan expansions and guarding against risks.

The headline growth rate of the Chinese economy slowed to 7.4 percent in 2014, its weakest since 1990, spurring concerns that it was losing steam. The government-set growth target was lowered to around 7 percent for 2015, with more stress to be laid on restructuring and better-quality growth.

The latest batch of economic data did not offer enough reasons for optimism. Profits of Chinese industrial businesses whose annual revenues exceed 20 million yuan stood at 745.24 billion yuan (121.5 billion U.S. dollars) in the first two months of 2015, down 4.2 percent year on year.

China's retail sales grew 10.7 percent year on year to 4.8 trillion yuan in January and February, but the rate slowed from the 12-percent annual gain seen in 2014. With a cooling property sector, China's investments, a pillar buttressing the economy, eased pace last year.

However, some new growth engines are on the horizon. Online retail sales have continued to be a bright spot, surging 44.6 percent year on year in the first two months. Chinese listed high-tech companies performed sterlingly last year, in stark contrast with listed steel and cement companies, whose revenues waned.

"With the Chinese economy shifting gears, Chinese banks are walking the fine line of increasing loans to support the real economy and reining in non-performing loans (NPL)," said Zong Liang, deputy head of the international finance institute of the Bank of China (BOC).

Bad loans at major Chinese bank have been on the rise, with NPL at the five biggest banks including the BOC all exceeding 1 percent by the end of 2014. This remains a challenge for the industry in 2015.

Profit growth for the five banks all slowed to single digits last year, with net profit in Agricultural Bank of China edging up 8 percent, its first single-digit profit increase after an expansion of 14.5 percent in 2013.

The NPL ratio of China's entire banking industry rose to 1.64 percent by the end of last year as economic growth slowed and many local governments and companies grappled with debt problems.

Chinese banks need to improve their loan mix in line with the country's industrial upgrades and economic restructuring, said Wen Bin, chief analyst with China Minsheng Bank.

"They need to gradually reduce loans flowing into polluting and high energy-consuming industries and those with overcapacity. Meanwhile, they should step up lending support to strategic emerging industries, high-end equipment manufacturing, modern services and upgrades of traditional industries," Wen suggested.

His view was echoed by Guo Tianyong, a professor at Beijing-based Central University of Finance and Economics, who said Chinese banks must deepen their understanding of client companies' operations and stay ahead of the learning curve of industry development to fine-tune their loan business and create sustainable growth engines through innovation.

Guo cited U.S. bank Wells Fargo as an example of tapping the growth potential for banks by serving communities and small businesses.

Some industry observers said Chinese private banks are more innovative in rolling out new businesses serving small companies and new business models, while the big five banks have to learn to be more nimble, as their traditionally important customers are big state-owned enterprises, many of which are tackling overcapacity and decreasing profitability.