China's banking sector - foreign investors' favourite proxy for the country's once white-hot growth - is primed for months of pain amid fears that $50 billion (£33 billion) of capital invested by financial groups may be poised to desert.

Analysts are giving warning of an investment exodus from China's banks as the situation presents a perfect “escape hatch”. Western banks desperately need capital; their investment exits from Chinese banks will mostly earn healthy profits, and, perhaps most critically, there are dark clouds gathering over Chinese banking.

Nick Lord, an analyst for Macquarie, said: “What nobody knows for sure and what will continue to be a source of uncertainty is how far the wider economic slowdown may lead to credit-quality problems towards the end of the year.”

However, Mr Lord added that a sell-off could, in the long term, prove costly to Western banks that had hoped to use the stakes to further their expansion into China. “There was a strategic imperative that led them to buy these stakes and, even if they are having issues with raising capital, they have to be careful not to throw the baby out with the bathwater,” he said.

Fear of a substantial departure has been growing since UBS sold its 1.3 per cent stake in the China Construction Bank (CCB) last week and Bank of America followed suit with a trimming of its 19 per cent stake.

The prospect of a wider exodus has been increased by Royal Bank of Scotland (RBS) saying this week that it is examining its stake in the Bank of China. Fund management sources told The Times that there was “inevitably” more selling to come.

Shares in leading Chinese banks slid in trading on Thursday and yesterday as markets reassessed the stability of big stakes held by foreign institutions ranging from Goldman Sachs and Citigroup to Dresdner, BBVA and two of Japan's largest financial groups. Most affected by the rout were Industrial and Commercial Bank of China and Bank of China, but trading was rough for any bank shares with substantial foreign holders on the shareholder register.

Industry insiders said that last week's sales and a potential sale of RBS's $2.8 billion interest in Chinese banking had shaken the image of stability. They noted that stakes held by foreign banks had been described as “strategic” by their owners, but that RBS's review of its investment had come only days after a lock-up on its stake had ended.

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