(Yicai Global) Aug. 10 -- China's top banking regulator punished hundreds of banks last month because they failed to conform to new tighter rules on risk-taking.

The China Banking and Insurance Regulatory Commission fined 200 banks a combined CNY80 million (USD11.7 million), the watchdog said on its website. Thirty percent of the remiss lenders were rural commercial banks, which accounted for almost half of the entire financial penalty.

"The violations at these banks remain a long-standing issue," a market analyst told Yicai Global, adding that the tougher regulatory environment has pushed the issue out into the open.

China had more than 1,200 rural commercial banks last year, accounting for almost a third of all its lenders. They mainly serve small and mid-sized farms and support local economic development. Their difficulties could lead to a spate of mergers and acquisitions, though the mechanism needs improvement as relations between some banks and local governments is subtle, according to Hua Chuang Securities analyst Zhang Ming.

A number of the banks have been quick to develop interbank businesses, lending to each other in pursuit of short-term profit growth and business expansion without the necessary risk control or management capacity, said Xu Chengyuan, chief financial analyst of Golden Credit Rating International.

The banks are looking for new revenue streams in the face of ballooning bad loans, declining asset quality ratings, and falling profits, said Zou Hengchao, a researcher at China Merchants Securities. The non-performing loan situation is unlikely to ease up over the next months, he added. Still, the regulator said it will continue to bear down on the market, putting pressure on the supervision and operation of rural commercial banks.

Provincial credit unions manage the banks, with market analysts calling for reform to boost the lenders' market-based development.

Rural commercial banks should also take advantage of their strengths such as deep roots in local communities and knowledge of individual province's economic and industrial circumstances, as well as increase the capacity of risk identification, Golden Credit's Xu said.

Editor: Emmi Laine