Tighter financial regulations have prompted Chinese banks to apportion greater resources to the real economy, the part that produces goods and services, and improve the overall quality of financial services while keeping risks at controllable levels, said an official of the China Banking Regulatory Commission.

At the end of 2017, the balance of various bank loans increased by 12.4 percent year-on-year to 129 trillion yuan ($20.49 trillion).

The growth rate was higher than the 8.7 percent increase in bank assets held in Chinese and foreign currencies, according to data released by the CBRC on Feb 9.

“It shows that the trend of turning from the real economy to virtual economy has been contained among banks,” said Xiao Yuanqi, head of the CBRC’s prudential regulation bureau.

The balance of bank loans to small and micro enterprises and that of agriculture-related loans both hit 31 trillion yuan at the end of 2017, up by 15.1 percent and 9.6 percent from the previous year, respectively.

“In the past few years, bank growth has deviated from growth of the real economy. But now, banks must go back to the basics of finance, which is to serve the real economy,” said Steven Xu, a financial services partner at global consultancy firm EY.

To help banks achieve this goal, China has strengthened control over risks associated with shadow banking and cross-sector financial products since last year by stepping up regulation on interbank and asset management businesses.

The People’s Bank of China, the central bank, along with the banking, securities and insurance regulators, issued draft guidelines to tighten regulations on the asset management business of financial institutions last year.

According to the draft guidelines, financial institutions should stop offering guaranteed protection for the principal amount and the returns on certain asset management products.

The regulators also plan to forbid financial institutions from using other FIs, or so-called “channel” firms, to raise and invest asset management product funds, so as to avoid rules on bank leverage ratios and on the scope of investment.

A transition period will be given to financial institutions to adjust their asset management business until June 30, 2019, according to the draft. The transition period is likely to be extended appropriately, Chinese business media Yicai reported on Feb 6.

Under tougher banking regulations, senior bank executives must change their business ideas and mindset, said EY partner Xu.