S&P: Drop in China's property market can hit country's banks

According to the latest warning ratings agency Standard & Poor's produced, the drop that China's property market suffered this year could negatively impact the country's banks.

While the housing market in China has started to see some recovery lately, with data released at the start of the month showing house prices rose at their fastest pace in 18 months, weakness seen earlier in the year could have "negative knock-on effects" for domestic Chinese lenders.

In its annual outlook on lenders, the agency said, that they keep monitoring the Chinese developments on regional credit quality and consider that the weakening Chinese property market could negatively influence the Chinese financial institutions sector.

"...Our view is that a major disorderly property adjustment in China, though not our base-case scenario, would have a significant negative impact on many of the region's banking sectors, including China itself," the group added.

China rose at its slowest pace in 24 years in 2014, despite being the world's second largest economy. That undershot the government's target for the first time since 1998.

This steep slowdown was largely blamed on the major drop in property prices, which is seen as one of the major risks for the economy.

The People's Bank of China cut benchmark interest rates four times since November in an effort to ease the cost of mortgage repayments.

The central bank also slashed the amount of cash reserves commercial banks are required to hold in May, aiming at easing pressure Chinese lenders experience.