BEIJING -- Property exposure is the biggest threat to the viability of China's banks due to the banking system's reliance on real estate collateral and strong links between property and other parts of the economy, global rating agency Fitch said.

For Fitch-rated banks, loans secured by property--residential mortgages and corporate loans backed by property--have surged 400 percent since end-2008, compared with 260 percent for loans overall, noted a Fitch report.

"Loans secured by property now make up 40 percent of total loans in these banks. Residential mortgages have more than tripled since end-2008, and corporate loans secured with property have increased almost five-fold in the same period," it added.

The use of property collateral is predominant not just among loans to property developers and local government financing vehicles, but also increasingly common among corporate and micro- and small-enterprise borrowers, said Fitch.

"A steep fall in property prices would diminish the value of collateral, weaken banks' lending capacity and increase borrowers' default probabilities," it cautioned.