China may bail out banks if property collapses: Fitch

China's government is cracking down on property speculation after record price increases in March. Measures to cool the market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases. Bank stocks have fallen in Shanghai and Hong Kong this year on concern the clampdown may add to bad debts.

Property prices in 70 Chinese cities jumped a record 11.7 percent in March, fueling concern that lending growth and inflows of capital from abroad are creating asset bubbles in the nation. The People's Bank of China raised the reserve requirement for banks for a third time this year on May 2.

“The problem is there is a very high indirect exposure to the property market, mainly through corporates who have taken out loans and used that money for property investments or developments of their own,” Chu said.

Advances for property purchases at the 19 Chinese banks Fitch covers make up about 25 percent to 30 percent of their total lending, she said. Bad loans won't significantly deteriorate this year, though they could be a concern next year, Chu added.

China's real estate market is a cause of “serious concern,” Jonathan Cornish, a Fitch senior director on the company's Financial Institutions Ratings team for North Asia, said on the same conference call. Loan growth in China is projected to remain “strong” at 7 percent to 8 percent this year, he said.

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