The country's seventh-largest lender by assets, China Citic Bank Corp, plans to cut lending in the real estate market due to "severe" risks in the sector. Analysts say the measure will lead to more trouble for developers trying to secure funding and market restructuring.

Citic Bank will reduce its property loans this year by a third to ensure financial risks are controlled, Shi Yuan, the general manager of the bank's risk management section, was quoted in Dow Jones Newswires as saying on Thursday.

"Citic Bank sees that real estate risk this year is severe," Shi said on a quarterly teleconference. "We especially are paying attention to risks in the funding chain for developers. We believe as tightening continuously gets stronger, the true real estate risks will appear."

The remarks came amid government cooling measures in the property sector including credit tightening measures and limits on purchasing.

"Nearly all developers have no access to the capital market so far," Guo Guoqiang, vice president of Fusheng Group, a Fuzhou-based real estate company, said on Thursday. "They need to get permission from the Ministry of Land and Resources before issuing bonds and shares or applying for the IPOs, but few of them can pass the review since the requirements are very strict. "In view of that, developers will no doubt be under the strain of capital shortages, which will become more serious if banks limit lending," Guo said.

Many property developers have switched to property trusts for financing, but Guo said, "it is not realistic since financing costs, sometimes with lending rates of 20 percent, are much too high."

Zhang Zhengjun, a researcher at the State Council's development research center, said some small-sized developers could be squeezed out of the sector leading to market restructuring.

Last month the China Banking Regulatory Commission required banks start stress tests on lending in the property market to minimize financial risks.

A year ago, the commission twice ordered banks to carry out similar stress tests with banks sustaining a drop in home prices of up to 30 percent.

An industry watcher said more banks will limit lending amid concerns that a drop in prices could impose financial pressure because of the government's efforts to cool down the over-heated market.

"Though first quarter new loans in the real estate sector are high because previous projects need to be completed with financial support, banks will become cautious about new projects lending later," Sun Peng, an analyst with the Bank of China International Securities said on Thursday.

Chinese banks extended 167.8 billion yuan ($25.8 billion) in new loans to property developers in the first quarter, up 17 percent from the same period last year, data from the central bank April 28 shows.