Chinese regulators have reportedly advised the banks to restrict lending this year over increasing concerns regarding financial bubbles in the domestic market.

The central bank of the country has asked local lenders as well as foreign banks to trim their loan books, Reuters reported quoting unnamed sources familiar with the matter.

The sources further told the news agency that the China Banking and Insurance Regulatory Commission (CBIRC) is examining potential misuse of business loans awarded to individual borrowers.

This comes after China increased business lending to support the Covid-19 pandemic affected economy. Such loans are usually mandated for meeting operational costs.

However, some of the investors reportedly used the money to buy properties and stocks creating financial bubbles in the industry. It also violates local regulations.

One of the sources was quoted by Reuters as saying: “A large amount of money in the name of business loans had flown into the property and stock markets during the pandemic last year.

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“Banks are scrambling to collect back loans issued last year and will not extend such loans.”

Notably, SME lending jumped by 50% last year and was expected to grow 30% further this year.

Recently, CBIRC, the financial watchdog of the country, asked fintech firms to meet same capital adequacy requirements as traditional banks in two years.

The move is aimed to reduce risks and discourage monopolistic practices in the industry.