Chinese banks should strengthen their financial and risk management while further supporting the nation's economic growth, the country's banking watchdog said, as there are mounting concerns that the credit explosion may pose risks for the financial sector.

In a guideline jointly released by the China Banking Regulatory Commission and Ministry of Finance on Sunday, Chinese banks have been urged to enhance the capabilities to identify and tackle risks, closely monitor borrowers' financial conditions and carefully assess risks when extending loans for mergers and acquisitions.

The call comes after Chinese banks extended record high new loans to help finance the government-led stimulus projects, indicating that policymakers are increasingly feeling the potential risks of galloping credit growth, analysts said.