Chinese banks must restrict shadowing activities and bring off-balance-sheet trust loans back onto their books to help ward off possible risk, the country's top banking regulator said on Monday.

The risk-control situation remains grim, China Banking Regulatory Commission Chairman Liu Mingkang said in a speech posted on the agency's website ( We must closely follow new developments in the property market and improve our research and assessments on the market and strengthen supervision of property trusts.

Banks should restrict shadowing -- a reference to off-balance-sheet activities and strictly follow the official schedule on rectifying such loans, Liu added.

Last year, banks rushed to sell loans to trust firms to remove them from their balance sheets, until regulators cracked down on the practice and told banks to return trust loans back onto their balance sheets by the end of 2011.

Local media reported earlier that the authorities may further tighten control over property trusts by ordering property developers to set aside more cash before they sell their projects to investors via trusts.

Liu also reiterated his warning on risks from loans made to local financing vehicles and vowed to clean up such debts.

Chinese banks have extended a huge amount of loans, which some researchers have estimated at 10 trillion yuan ($1.5 trillion), to local government finance vehicles since China started its massive economic stimulus package in late 2008.

($1 = 6.493 Chinese yuan)

(Reporting by Kevin Yao and Aileen Wang; Editing by Chris Lewis and Ramya Venugopal)