Chinese banks are still trying to lend as much as possible, which is likely to lead to more non-performing loans, said a source close to government decision-makers on Monday.

"It would be very hard for the central bank to rein in banks' strong desire to lend. Banks should take responsibility for possible non-performing loans instead of seeking help from the government," said the source, implying that more loans would mean more risks.

In the final two days of November, the four large State-owned commercial banks suddenly accelerated lending, extending about 70 billion yuan ($11 billion), compared with loans of 100 billion to 140 billion yuan during the first 28 days.

Dong Wenbiao, board chairman of China Minsheng Banking Corp, said banks would always tend to lend as much as possible because, under the current regulations, they must rely heavily on net interest margins to make a profit.

Analysts have said that the credit policy during the fourth quarter, especially in the final two months, will be relatively loose, and new yuan-denominated lending by domestic commercial banks will total nearly 7.5 trillion yuan in 2011.

In October, commercial banks extended 586.8 billion yuan in loans, taking total new loans for the first 10 months to 6.28 trillion yuan.

In 2010, new yuan lending totaled 7.95 trillion yuan, above the government's target ceiling of 7.5 trillion yuan.

Lian Ping, chief economist at Bank of Communications Co Ltd, estimated that new yuan lending had totaled about 550 billion yuan in November, and lenders see very weak deposit growth and undergoing the effects of loan-to-deposit ratio requirements.

"In addition, in October the Ministry of Railways got temporary lending support, which might not have continued through November," Lian said.

He said that new yuan-denominated loans would continue to increase in December and new lending for the full year was likely to total about 7.5 trillion yuan, before lending expands in 2012 amid a policy loosening.

Falling inflation and signs of a possible economic slowdown in China have given more room to the government to loosen its monetary stance and credit controls, especially for small and medium-sized enterprises, projects under construction and affordable housing developments, said analysts.

The consumer price index registered the biggest decline this year in November, falling to 4.2 percent year-on-year from 5.5 percent in October, according to the National Bureau of Statistics.

"With reduced inflation risks and rising growth risks, we believe the policy focus is shifting from 'managing inflation' to 'supporting growth' and 'preventing financial risks'," said Chang Jian, a China economist with Barclays Bank PLC.

Chang said the authorities would try to prevent downside risks and be flexible and swift in rolling out support policies, bringing the new loan quota from 7.5 trillion to 8 trillion yuan in 2012.

"With the European sovereign debt crisis casting a shadow over the global outlook, we expect the authorities to loosen policy with the next reserve requirement ratio cut in January. The possibility of a reserve ratio cut in December, although not our baseline view, has increased, said Zhang Zhiwei, Nomura Holdings Inc's chief economist for China.

A lower reserve ratio would let banks set aside less money in reserve and lend out more to make a profit.

In November, the International Monetary Fund warned that Chinese lenders could face systemic risks if several large shocks took place simultaneously.

Chief banking regulator Shang Fulin has told lenders to take action to curb the effects of possible defaults resulting from local government budget shortfalls and slower sales for developers, Bloomberg reported in November.