China’s banking regulator has ordered lenders to set aside provisions for loans they’ve transferred to trust companies to cushion against potential risks, three people with knowledge of the situation said. The loans must be transferred back onto the balance sheets of banks by the end of 2011, the people said, declining to be named as the matter isn’t public. Banks have been told to prepare provisions equal to 150 percent of potential losses from these so-called off balance sheet loans, they said.

More than 2.3 trillion yuan ($340 billion) of outstanding credit was in investment products and off the balance sheets of Chinese banks at the end of June, distorting loan figures, Fitch Ratings said July 14. Large banks were told to set aside additional capital for the off-the-balance-sheet assets if they need to in order to meet the nation’s current 11.5 percent capital adequacy requirement, the people said. Reuters reported the order to take back loans from trust companies earlier today.