(Yicai Global) July 27 -- Moody's Investors Service, the bond credit rating service of Moody's Corporation, has revised its outlook for China's banking system to stable from negative, following the government's policy efforts to curb shadow banking which will reduce asset risks for the country's banks, a newly released report by the credit ratings agency states.

"The revision reflects our expectations that nonperforming loan formation rates will be relatively stable at current levels," said Yulia Wan, analyst at Moody's Investors Service and author of the report.

Asset risks will moderate over the next 12-18 months, while capitalization will stay stable in China market, the report said. China's banks will also benefit from policies to encourage investment in specific sectors such as infrastructure and construction.

Moody's expects China's government to provide strong support for banks in times of stress, especially major banks. However, government support for smaller banks will likely become more selective, the report suggests.

The Moody's report rated 24 banks in China, accounting for 65 percent of China's total banking system assets. Banks with stable outlooks now account for 89 percent of these rated banks assets.