China's banking regulator is urging banks to lend more to small companies and abandon their reliance on big enterprises in the light of complaints that small firms are suffering the most under current tightening policies.

"Big companies are leaving banks as the growth of direct financing offers more financing channels," Liu Mingkang, chairman of the China Banking Regulatory Commission told the Lujiazui Forum yesterday in Shanghai. "Banks must strictly control their loan concentration."

Direct financing, such as bonds and stocks, has accounted for about a quarter of China's total financing amid the growth of China's capital market. Direct financing also costs less than bank loans.

China aggressively tightened its monetary policy from late last year, making credit more costly and difficult to obtain. Some small companies, with mere collateral or limited credit record, had to turn to the underground black market that required rates higher than benchmark rates because the banks had closed their doors to them.

Meanwhile, market watchers said China's macro-prudent supervision of the banking sector, such as a tighter requirement on capital adequacy ratio and banks' loan provision, could add pressure on commercial lenders.

The supervision, which China makes in tandem with new global banking requirements, can lead to banks making more prudent decisions in issuing loans, said Liu Minghua, a Deloitte partner.

At the end of 2010, all Chinese listed banks had an average capital adequacy ratio of 12.5 percent, she said.

The top banking regulator requires a minimum capital adequacy ratio of 11.5 percent on its top five banks - the Industrial and Commercial Bank of China, China Construction Bank, the Bank of China, the Agricultural Bank of China and the Bank of Communications.

Smaller banks with a national presence are required to have at least a 10.5 percent capital adequacy ratio.

ICBC's capital adequacy ratio was 12.27 percent at the end of 2010. CCB's ratio was 12.68 percent. The ratios were 12.58 percent for BOC, 11.59 percent for AgBank and 12.36 percent for BoCom, according to the lenders' annual reports.