China continued to make progress in curbing risks in the financial sector in the first quarter of 2018, according to global ratings agency Moody's.

"We are noticing slowing asset growth and stabilising asset quality, as well as accelerating loan growth as banks are returning to conventional lending and away from shadow banking activities," Mr Nicholas Zhu, Moody's vice president and senior analyst, said in a report.

"Looking ahead, we expect the regulators will maintain a cautious approach in order to alleviate any potential disruption to the real economy from the clampdown on shadow banking and interbank activities," Mr Zhu said.

China's banking institutions saw their total assets reach CNY256 trillion($38.7 trillion) at the end of the first quarter, up 7.4% year on year, slower than the 14.3% growth a year earlier, official data showed.

The average non-performing loan ratio for commercial banks stood at 1.75% at the end of the first quarter, edging up by 0.01 percentage point from the end of 2017, according to the CBIRC.

Asset quality stabilised in line with sustained expansion in the macroeconomy, the Moody's report said.

Lenders' profitability improved, while liquidity remained balanced among the banks, according to the report.

Chinese authorities have taken stricter measures to regulate the financial sector, as the country lists preventing risks as a tough battle it aims to win in the next three years.