China's banking regulator is warning lenders that bad loans to property developers are likely to soar, as sales slow.

The CBRC released its third-quarter Banking Operation Report yesterday, calling to tighten risk management over property loans, and local government loans.

China's home sales plunged by a quarter in October, bringing housing prices down and putting pressure on developers' capital liquidity. As developers with higher risks are cut short on funds from banks, they turn to local loan sharks for refinancing, which may trigger major credit risks.

CBRC has also suggested banks to set up firewalls to block risks from local loan sharks, and prevent bank's funds being illegally channelled to local organisations.

The 3Q report shows commercial banks bad debt has declined by 26 billion yuan compared to the beginning of 2011, sitting at 0.95 percent. Net profit for all commercial banks is around 817 billion, a 35 percent increase year-on-year. The housing purchase restriction has been in place since early this year, to battle China's high property prices.

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