Stress tests have shown that Chinese banks can cope with a drop in property prices of up to 50 percent, the country's top banking regulator has said.

The tests in this year's second quarter found that even a drop that large wouldn't result in bad loans having any great effect on the banking system, said Liu Mingkang, chairman of China's Banking Regulatory Commission.

"The result of the stress test has told us, in the worst scenario, even if housing prices drop by 30 or 50 percent, banks will still be able to handle the non-performing loans," Liu said.

There has been concern that a home prices correction could lead to a surge of bad loans for Chinese banks.

China has been attempting to curb house price speculation and some market watchers are worried that a tumbling market will in turn translate to a blow to banks, which may further hit China's economic growth.

"The results of the tests will strengthen commercial banks' confidence to implement tightening measures on the property market," Liu said.

He said the banks' rising capital adequacy ratio showed that their ability to counter risks was growing.

"No banking system is without risks," Jayan Dhru, global head of financial services ratings of Standard & Poor's, said yesterday in Shanghai. "The question is how do you manage growth, how do you manage that where there is a growth slowdown."

Standard & Poor's said it had no negative rating outlooks for China's major banks and this indicated it believed risks can be managed at current rating levels.

In the first half, real estate development investment grew 32.9 percent to 2.6 trillion yuan (US$404 billion).

Banks extended 791.2 billion yuan of yuan-backed real estate development loans in the first six months, down 598.5 billion yuan from a year earlier.