While Chinese banks enjoyed a lending spree last year, their foreign counterparts in China seem to have lost some of their fizz.

Foreign-funded banks accounted for a minimum 1.71 percent of the country's banking assets last year, according to a central bank report, down from 2.16 percent in 2008 and 2.38 percent in 2007.

A wild expansion of foreign banks in China has occurred over the past few years, drawing strength from their deeper and more sophisticated product offerings and global client relationships. But as they spread across the country, they face daunting challenges in private banking and wealth management from Chinese rivals, which are eager to diversify away from traditional lending business.

Foreign banks entering new markets frequently use competitively priced corporate loans to form initial relationships with new clients. But this door has been closed by the low margin and availability of loans from the large Chinese domestic banks, said Raymond Yung, PricewaterhouseCoopers' Financial Services Leader for China.

In a move to spur growth, Chinese banks opened the floodgate of lending, with new renminbi loans totaling an eye-popping 9.59 trillion yuan ($1.4 trillion) last year.

But analysts think the lending binge has put a dent on the capital adequacy ratio of Chinese banks, offering an opportunity for foreign banks to snap up stakes in their Chinese counterparts.