AFTER surging on Monday, shares in the nation's 14 public banks lost steam yesterday despite some lenders posting better-than-expected third-quarter profits. Analysts blamed concerns over falling interest rates.

Three lenders, the Shanghai Pudong Development Bank, the Bank of Nanjing and the Shenzhen Development Bank, have posted sterling results in the third quarter.

"Pudong Bank's 150 percent year-on-year third-quarter profit growth is better than we expected," said Zhu Yan, a CITIC Securities analyst. "However, the tax-cut effect quoted as a profit driver is one-off and cannot be realized in 2009. Furthermore, the bank is faced with rate-cut challenges."

Chinese banks face challenges such as a decline in interest rates and the possibility of loans write-offs stemming from the global credit crisis.

"As the economy slows, China will face a good old-fashioned banking problem - rising non-performing loans," said Standard Chartered Bank in a note.

The People's Bank of China, the central bank, cut both lending and deposit rates this month.

Stephen Green, head of research at Standard Chartered China, said he expected two more rate cuts in the fourth quarter and another 54-basis-point cut in 2009.