The performance of foreign banks in China dropped last year compared with the previous year, as the country witnessed the slowest growth in three years and the authorities further liberalized interest rates.

According to the China Banking Regulatory Commission (CBRC), foreign banks achieved profits after taxes of 16.3 billion yuan ($2.61 billion) in 2012, down from 16.7 billion yuan ($2.7 billion) in 2011.

Their asset quality also fell as the ratio of soured loans against total loans rose to 0.52 percent at the end of last year, from the 0.41 percent one year earlier, said the report.

"Chinese banks, especially the five state-owned lenders, have dominated the market, and their growth has affected the market share of foreign banks," said Jimmy Leung, China banking and capital markets leader at PricewaterhouseCoopers China.

He said the economic environment had more influence on foreign players as their financing business is more important to them than to their Chinese counterparts, and that the CBRC's tighter regulations on fees last year have also hurt their income more severely than Chinese banks, which are still highly dependent on the traditional lending business.