China’s top banks are intensifying scrutiny of smaller lenders to mitigate credit risks amidst a worsening property debt crisis. Key state-owned and joint-stock banks are now reassessing smaller peers for poor asset quality and high default risks. Consequently, they have reduced interbank lending limits and shortened maturity periods for these high-risk banks. This cautious approach reflects growing concerns about the financial stability of smaller banks, particularly vulnerable due to the property sector’s downturn and increasing local government debt. These banks represent about half of the interbank lending market’s trading volume. Measures include halting bond purchases from banks with assets under USD40bn and targeting at-risk lenders in debt-heavy regions. Additionally, rates for certificates of deposit, crucial for small lenders’ funding, have spiked, signaling liquidity challenges.