China's banking regulator told foreign banks operating in the country to boost lending to aid an economy going through "a difficult situation" after they cut back on loans last month.

Foreign banks should tap market demand and adjust their lending plans, Yan Qingmin, director of China Banking Regulatory Commission's Shanghai branch, said in an e-mailed statement on Thursday. More loans should be given to smaller companies and rural areas, he added.

"The continued and healthy growth of foreign banks in China depends on the health and stability of the Chinese economy," Yan said. The lenders should "increase their contribution" to financial stability and economic growth.

Overseas banks cut local-currency advances in Shanghai by 1.78 billion yuan (US$263 million) last month, as local lenders extended a record 95 billion yuan of new loans, according to the city's central bank branch. Shanghai accounts for 61 percent of foreign banks' total lending in China, Bloomberg News said.

(Shanghai Daily February 20, 2009)