(Shenzhen Daily)
Updated: 2007-07-03 16:57

The banking regulator has ordered small and medium-sized banks to rein in lending and step up their oversight of credit flows to prevent borrowed funds from entering the heated property and stock sectors.

In a statement on its Web site yesterday, the China Banking Regulatory Commission also urged banks to better comply with government policies on the economy and to reduce exposure to high-polluting and energy-intensive sectors.

"There are problems associated with lending by some small and medium-sized banks that merit great attention," the commission said.

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Special Coverages: Markets Watch It later warned of the need to prevent individuals and companies from illicitly using bank loans to invest in stocks or the real estate sector.

The regulator said earlier last month that it had punished the branches of eight banks for lending money that eventually ended up in stock and property investments, underscoring the government's concerns towards an overheated stock market.

In yesterday's statement, the regulator outlined other risks related to rapid credit growth, including continued exposure by some banks to risky economic sectors suffering from overcapacity.

It also served as a reminder to domestic banks to maintain capital adequacy ratios of at least 8 percent. Those failing to meet those regulatory guidelines needed to keep their lending to a minimum, it said.