The report says that at least two of China’s biggest state-owned banks have stepped up reviews of smaller lenders in recent months, in order to flag out those with poor asset quality and a high risk of default. The sources also note that these larger banks have tightened standards for interbank lending to said smaller peers by reducing lending limits and by setting shorter maturity periods for those deemed as high risk.
There has been increased scrutiny on the financial sector in China, especially after the crackdown on the property sector by the government. So, this seems to be a cautious and prudent step to ensure that any such spillovers do not impact the larger lenders too heavily I guess. That considering that smaller lenders have been aggressively borrowing from their larger peers to raise funds in recent years.