[SHANGHAI] China's banking regulator has urged lenders not to pay out extraordinary dividends and limit their local government debt exposure, two people with direct knowledge of the matter told Reuters on Monday.
The China Banking Regulatory Commission said banks' retained profits should be used primarily to replenish core tier 1 capital.
Lenders should also require local governments to reflect their full-scale debt obligations in their fiscal budget, the regulator said in a document seen by sources separately.
China's lenders are facing increasing bad loans and credit risks as a government campaign to reduce capacity weighs on the manufacturing sector and as broader economic growth slows.
Speaking at the China Development Forum on Sunday, China's central bank governor Zhou Xiaochuan said he is concerned about the high level of corporate debt relative to gross domestic product.