Foreign banks operating in China see rosy prospects for their growth in the country, but admitted Chinese lenders are rising into "formidable competitors" to challenge their expansion, consultancy and audit company, PricewaterhouseCoopers (PwC) said on Wednesday.

In a PwC survey of senior executives involved in China business at 42 foreign banks, these institutions continue to stake their future in China with most of them expecting revenue growth of between 10 and 20 percent in the country this year.

"China remains a key market for the future growth of foreign banks, and there is no room for complacency in this increasingly competitive market," said Raymond Yung, financial services leader for PwC China.

The survey showed these foreign banks identified competition from domestic rivals as the biggest challenge, replacing regulatory environment and retaining talent, the top source of concerns for foreign banks reflected by the past surveys.

"With their extensive branch networks and rising service expertise, Chinese lenders are much better placed to fend off competition from foreign banks," Yung said.

Major Chinese lenders each boast a retailing network of tens of thousands of outlets nationwide, comparing with the less than 100 managed by HSBC, Standard Chartered and Citigroup in China.

Foreign banks, which managed to retain their market share in terms of total assets, at about 2 percent last year, have largely sat out the country's lending binge in 2009, when their Chinese peers flooded the market with credit to fund China's giant stimulus package and bolster the slowing economy.

PwC said the demanding regulatory environment has also affected the speed and scope of foreign banks' expansion in China, and going forward, foreign banks expect regulations will tighten further.

Despite these challenges, the survey found foreign banks' commitment to the Chinese market is still very strong.

It expects 10 to 15 more foreign banks will seek local incorporation in the next three years. Lenders from China's Taiwan, driven by the pending cross-Straits financial cooperation agreement, are likely to enter the mainland market through local incorporation.

In terms of footprint expansion, the primary growth option for foreign banks continues to be organic growth, and three in four of the bankers polled in the survey said they are interested in engaging in mergers and acquisitions in the next three years, the survey said.

Potential targets are asset management, securities, leasing and trust companies, and the trend of investing into city commercial banks or rural banking is likely to continue, Nelson Lou, transactions partner of PwC China, said.