The shift in focus by the state-owned lenders coincides with a spike in non-performing loans and slower profit growth as China's vast factory sector flounders.

For the first half of this year, the banks reported an increase in bad loans from the Yangtze delta, the country's main export-focused manufacturing belt, as well as the Bohai industrial rim.

China's biggest bank, the Industrial and Commercial Bank of China <1398.HK> (>> Industrial and Coml Bank of China Ltd), also said 80 percent of new non-performing loans in the second quarter came from manufacturing and wholesale.

Several lenders said they expect bad loans to continue rising this year, especially from creditors in the steel, wholesale and shipping sectors. The Agricultural Bank of China (>> Agricultural Bank of China Ltd)<1288.HK> , for example, said it had cut loans to customers in steel making and ship building by almost 39 billion yuan ($6.4 billion).

Loan officers at several banks told Reuters they were no longer working on sectors like shipping and commodities, focusing instead on high-growth areas like health and technology.

Other bankers said they would look to generate more revenue from asset management, trust lending and financial leasing.

Some banks, like Bank of China (BoC) (>> Bank of China Limited)<3988.HK> , were also looking to extend loans to domestic clients through their overseas branches to capitalize on higher interest margins.

"We'll make our own risk assessments on a case-by-case basis, but healthcare and high-tech electronics will be a focus," said a senior BoC loan officer.

"As lending conditions continue to tighten domestically, we're also helping our borrowers seek better terms abroad," he added. BoC said loans at its overseas branches rose almost 40 percent year-on-year at the end of the second quarter to 262 billion yuan.

The banks' efforts to diversify their borrowers could be hampered by the government, which uses these lenders as a means of directing credit to struggling industries and stimulating growth when the economy is struggling.

But with the level of bad loans as of June at its highest since 2011, the government may give lenders more autonomy.

"Misdirected lending is the biggest bane of banking, because it might lead to credit losses and ultimately they'll have to write off those losses," said Roshan Francis Padamadan, who manages $2.1 million for investors in the Luminance Global Fund.

(Editing by Miral Fahmy)

By Engen Tham and Lawrence White