Chinese banks were urged by the industry regulator yesterday to use the recently expanded loan quota to "truly" support small enterprises, which are having a difficult time amid rising costs and tightening credit.

Financial institutions must "make maximum use" of the increased quota for the development of small enterprises and make sure lending to those companies rises faster than overall loan growth, said the China Banking Regulatory Commission (CBRC) in a statement.

For the loans to small enterprises, interest rates should be at a level that limits risk but benefits the enterprises' sustainable development, said the CBRC.

The banks were also told to open more outlets where private business is active and provide more innovative funding channels for those enterprises.

Early in August, China's central bank raised the 2008 credit quota by 5 percent for nationwide lenders and 10 percent for local ones. The move was aimed at helping financing for small and medium-sized enterprises amid a tight monetary policy meant to curb inflation.

China has raised interest rates five times since January and strictly controlled credit, further pinching small enterprises, especially exporters, which were already battling an appreciating Chinese currency and soaring costs of labor and raw materials.

In the first quarter, Chinese lenders extended a total of more than 2.2 trillion yuan (US$340.9 billion) of loans. Of this, only 300 billion yuan went to small and medium-size enterprises, according to CBRC figures.

About 67,000 small and medium-sized enterprises went bankrupt in the first half, according to the National Development and Reform Commission. In the same period, 10 percent of small and medium-sized enterprises posted a year-on-year growth rate of 30 percent in industrial output, 15 percentage points lower than the same period last year.