HONG KONG, Jan. 13 -- Foreign banks in the Chinese mainland continue to be optimistic about their future performance going forward, according to a report released by Ernst & Young Greater China here on Tuesday.

"The regulatory landscape continues to challenge foreign players, while alongside are also the opportunities generated from the evolving RMB internationalization and interest rate liberalization," Managing Partner of Financial Services at Ernst & Young Greater China Jack Chan said.

In terms of total assets, based on the China Banking Regulatory Commission's 2013 annual report, foreign banks' market share in China was just 1.73 percent as of Dec. 31, 2013, below the market share of 1.84 percent back as of Dec. 31, 2004.

According to the report, foreign banks in China expect a modest improvement in performance over the next three years. Half of the participants predict a slight improvement, while 45 percent of them hope to see a significant improvement.

Despite the optimism, the report said many of the CEOs that they have surveyed find the market challenging and complicated by issues surrounding financial reform and economic uncertainty.

The most difficult regulatory challenge in 2014 was access to the bond market, followed by the myriad of rules and regulations and capital and liquidity constraints, Chan said.

As China's economy evolves, the foreign banks believe it is critical that the capital markets open up and the foreign banks participate more fully in the bond market, he said.

The report is based on interviews with 41 foreign bank CEOs and senior bank executives based in Shanghai, Beijing and Hong Kong and conducted during August and September 2014.

It examines the challenges facing players as they push to improve their footprint in China. It also looks at the trends and regulatory reform that is shaping the market and offer insights into ways of driving growth now and in the future.