The banking industry must adapt to the challenges generated by the interest rate liberalization, and keep more profits on hand to ease the capital pressure caused by credit expansion, China's top banking regulator said on June 29.

Shang Fulin, chairman of the China Banking Regulatory Commission, urged banks to further improve their capability to provide deposit and loan services, develop intermediary businesses, and expand channels to collect non-interest income, to gradually change the over-reliance on the spread.

He made the comments at the Lujiazui Forum in Shanghai.

"Under the new regulatory framework, banks should raise capital through multiple channels. The CBRC and ministries are working on more channels for lenders to supplement capital, including issuing preference shares, adopting innovative capital instruments, and going to the overseas market to collect money," Shang said.

He said the new regulations to contain risks in liquidity across the banking sector have been approved by the State Council and will be published at an appropriate time.

Banks are facing rising credit and liquidity risks in the financing of loans to local governments and in the real estate market, Shang wrote earlier in an essay published in the Qiushi (Seeking the Truth) Magazine of the Central Committee of the Communist Party of China.

The CBRC will apply new regulatory parameters, such as the liquidity coverage ratio, which sets the standards on highly liquid assets held by banks to meet short-term obligations, and the net stable funding ratio, which measures the medium and long-term funding of the banks'assets, Shang added.