Small and mid-sized financial institutions in rural areas should improve their risk controls amid worsening economic conditions, China's top banking regulator said in an online statement on Wednesday.

"Small and medium-sized rural financial institutions will have to face more potential risks as the global financial crisis has expanded from foreign markets to the domestic market, from big lenders to small banks, and from well-known international names to small enterprises," Jiang Dingzhi, vice chairman of the China Banking Regulatory Commission (CBRC), warned in the statement.

He urged banking regulators and provincial-level rural financial institutions to take effective risk-prevention measures, including helping local rural credit cooperatives that are facing losses.

The CBRC also said it will launch a three-year campaign starting in 2009 against financial crimes in the rural banking system.

The commission has carried out similar supervisory and investigative drives against rural financial crimes over the past three years. These efforts uncovered 237 cases involving 670 million yuan (97.8 million U.S. dollars) in 2007.

Rural credit cooperatives have functioned as major lenders to farmers and the agricultural sector for more than 50 years.

The rural banking system face mores credit risks than its urban counterpart with uncertainty in agricultural production and the lack of a modern rural social insurance net.

Statistics from China's central bank showed rural bad loan rates averaged 13.4 percent in 2007, much higher than that of the major commercial banks, which was 5.5 percent.