CHINESE banks must use up their added lending quota this year in favour of small and medium-sized companies, the top bank regulator said yesterday.

Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission, said lenders should aim to expand the volume of their SME loans over last year. Growth in SME loans should also be higher than banks' average lending growth, he added. Wang also urged commercial lenders to charge different interest rates on loans given to small businesses from those given to other companies and set up an independent mechanism to evaluate SME lending.

Banks should also expand their branches to areas where there was a strong demand from the private sector for funding, Wang said, without elaborating. China's central bank last month increased the 2008 lending quotas for national banks by 5 percent and regional lenders by 10 percent to help finance SMEs and rural areas.

On the other hand, the People's Bank of China and CBRC are urging rigorous credit management on commercial property projects to curb possible risks that could threaten the banking sector.

According to the joint-circular issued late on Wednesday evening, no loan would be given to developers to cover land transfer costs.

Overseas banks like HSBC, Hang Seng and Standard Chartered have also been allowed to apply for additional lending quota under the rural, SME category and for quake-hit areas.

More than 67,000 SMEs have been closed down in the first half of 2008, according to the National Development and Reform Commission.

Although the government has pushed for credit initiatives to SMEs for many years, lending to this sector remains minimal.