The Chinese banks' issuance of wealth management products, or WMP, presents growing risks for the sector as larger amounts of funding are sourced through this channel, Fitch Ratings said in a report on Wednesday.

"Managing WMP issuance and payouts is becoming a growing logistical challenge," said Charlene Chu, head of Chinese banks' ratings at Fitch.

"Add to this poor disclosure plus the fact that many of the assets and liabilities spend much of their life off-balance sheet and there is clearly cause for concern," Chu said.

WMPs are similar to time deposits, but the interest rates can be set freely by banks and many of the assets and liabilities stay off the balance sheets.

These products issued by Chinese commercial lenders usually require a minimum investment of 50,000 yuan ($7,900), and the capital from buyers often goes into bonds, loans, and company projects.

The nominal amount of outstanding WMPs rose to 12 trillion yuan in the third quarter, and could surpass 13 trillion yuan by year-end, in contrast to the 8.5 trillion yuan in 2011, Fitch Ratings said.

Unlike previous years, recent issuance has been driven mainly by non-State banks, with more than 85 percent of the 3.5 trillion yuan net increase in the first nine months taking place among joint-stock and city and rural commercial banks, it said.

It added that these entities' thinner liquid assets and narrower deposit bases make them more susceptible to WMP repayment issues.

By the end of the third quarter, Chinese banks were issuing the equivalent of 100 new WMPs per day. Turnover is high with approximately three-fourths of products maturing within six months, said the report.

Recent controversy over a soured investment product sold by Hua Xia Bank underscores the reputation risks incurred in selling some of these investment products to investors, it said.

The product in dispute was originated by a third-party investment company and was not a WMP issued under Hua Xia's name, yet the bank is still being held implicitly liable.