China's banks should be cautious in using external credit ratings when providing loans to companies, the country's banking regulator said Thursday.

Commercial banks should avoid using external credit ratings as the direct criteria of lending, the China Banking Regulatory Commission said in a statement on its website, but rather use them as a complementary reference in decision making.

It said commercial banks should rely on their own internal ratings. Banks that cannot rely on their own ratings should compare rating results from at least two external credit rating firms and use the lowest grade.

The policy aims to regulate lenders' use of external ratings and prevent systematic risks, the statement said.

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