The China Banking Regulatory Commission said on Monday it will support local governments that want to use financing vehicles to meet "reasonable" credit demand in 2013.
It also pledged to support large ongoing construction projects and ward off systemic and regional risks.
In a statement released at the end of its annual work conference, the regulator said: "We will be especially cautious about risks related to loan defaults, banks' off-balance-sheet business and risks that might spill over from private finance to the banking system."
The amount of bad loans for Chinese lenders has increased for four consecutive quarters, reaching 478.8 billion yuan ($76.94 billion) by the end of September. Their ratio of non-performing loans to total loans was 0.95 percent by the same date.
Regulators and analysts consider lending to local government financing vehicles and the property industry to be among the main sources of credit risk.
Policymakers' desire to shore up China's economy has led to a loosening of the credit controls imposed on financing vehicles and the property market, analysts said.
"If we look at the amount of the loans that were made to the vehicles and were supposed to mature as well as the actual amount of loans that soured in 2012, we can conclude that banks rolled over a large number of loans," said Hu Bin, a Moody's vice-president and senior analyst.
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