Chinese officials have warned against systemic risks as banks struggle to cope with rising bad loans as the economy slows.

Some banks have suffered heavy losses due to lax internal controls and other irregularities in bill financing, the People's Bank of China (PBOC) said in a document jointly issued with the China Banking Regulatory Commission (CBRC).

Banks must take steps "effectively control risks in bill businesses and promote the development of the bill market in a healthy and orderly way", the document said.

Banks usually accept and discount bills for clients and rediscount bills for other banks, according to the central bank.

Banks will be strictly banned from accepting and discounting bills for companies whose bill activities are found incompatible with their actual operations, according to the rules.

Banks will be barred from using loans to cover up non-performing assets incurred in bill businesses and they are not allowed to deal with illegal "bill intermediaries", it said.

The statement comes after reports of multi-million dollar bill frauds at Agricultural Bank of China Ltd (AgBank) (>> Agricultural Bank of China Ltd)<1288.HK> and CITIC Bank Corp (>> China CITIC Bank Corporation Limited), among others.

China CITIC Bank Corp said in January it had discovered a fraud involving 969 million yuan (102 million pounds) in funds illicitly drawn from its bill financing business.

The AgBank has said it could lose as much as 3.9 billion yuan from a similar fraud.

(Reporting by Beijing Monitoring Desk and Kevin Yao; Editing by Jacqueline Wong, Robert Birsel)