BEIJING - China's banking watchdog has instructed lenders to carry out quarterly stress tests as part of a drive to strengthen credit controls and liquidity management, state media reported on Friday.

A recent circular from the China Banking Regulatory Commission orders banks to measure their capacity to withstand liquidity risks and work out a corresponding strategy to handle those risks, the China Securities Journal quoted an unnamed source as saying.

"The directive is expected to be implemented by the end of this year. Commercial banks should conduct a regular stress test every quarter," the newspaper quoted the source as saying.

Chinese banks extended a total of 8.67 trillion yuan (S$1.77 trillion) in new loans in the first nine months, 75 percent more than in all of 2008, triggering concern about how the money will be repaid.

CBRC Chairman Liu Mingkang sounded a fresh warning on Wednesday about the risks entailed by such strong credit growth and told banks to lend at a more "reasonable" pace for the rest of the year.