Moody's Investors Service says the outlook for Chinese banks is stable relative to their exposure to the property development sector over the next year, adding that rated banks have sufficient capacity to absorb potential real-estate related credit losses, reports Thomson Financial News.

In a report, Moody’s indicates that while banks' exposure to the property sector has steadily increased over the past decade, expansion into real estate lending, in particular home mortgages, represents a net long-term benefit.

However, the speed of credit growth linked to the property sector raises concerns over the ability of risk management systems to adequately capture the risks coming from the sector, Moody's said.

Over the past 10 years, growth in real estate-related loans has consistently outpaced that of other loans, with their share in total lending rising from less than 4% in 1998 to nearly 20% in 2007.

The report noted that a key risk that

According to Moody's, Chinese banks' total risk exposures to property-related loans are most likely higher than what is indicated by their reported financial statements. Developers have been known to access bank loans through non-real estate affiliates or larger companies in order to side-step tightening controls.

While Moody's believes that the outlook for Chinese banks is stable, it remains negative on the property development sector because of tighter liquidity and more volatile property prices.