Banks in China are expected to lend more to small and medium-size enterprises amid a tightened money flow this year, analysts said.

The banking authorities are clamping down on the lenders' rapid credit growth this year and pushing commercial banks to tighten their loan policy.

The authorities' action has pushed commercial banks to shift their focus from lending for big infrastructure projects to smaller companies, analysts from Gaohua Securities Co said.

"We made a recent survey on bankers and most of them said they will focus on the small and medium-size enterprises and short-term credit this year following a tighter credit policy," said Xu Ran, an analyst with the broker.

Chinese regulators have made clear their stance that they want banks to lend more evenly to avoid risks triggered by a concentration on certain sectors and companies. Authorities have put a brake on the rapid growth in loans by banks and curbed bank lending to over-capacity sectors to ensure a stable and healthy expansion in loans.

Banks in China extended a record 9.6 trillion yuan (US$1.41 trillion) of new loans in 2009, almost doubling the target of 5 trillion yuan set at the beginning of last year. New loans this year are expected to drop to 7.5 trillion yuan. Banks were reported to have issued 1.5 trillion yuan of new loans in January. The People's Bank of China is expected to release the official loan data next week.

"The curb on loan growth also means that banks can benefit from rising pricing due to the limited supply of loans and expectations that interest rates will rise," said Gao Yuan, an Essence Securities analyst.

Economists expect the PBOC to raise interest rates as early as the second quarter of this year on rising inflation expectations.

Earlier this week, Fitch Ratings warned that Chinese banks face the greatest "bubble risk" of any Asian country and downgraded ratings on two lenders - China Merchants Bank and China CITIC Bank - because of rising risks of bad loans.