Banks in Shanghai face more risk exposure from the real estate sector as developers are struggling to pay loans due to tighter controls in housing policy, the local banking regulator said.

"Attentive loans," which may turn into bad loans but have yet to sour, rose among development loans since April, the Shanghai Bureau of the China Banking Regulatory Commission said yesterday in a statement.

The attentive loans on real estate development loans rose to 1.4 billion yuan (US$209 million) in June, up from May's 632 million yuan and April's 172 million yuan.

"Developers are showing less ability to pay back the loans," the regulator said.

Banks in Shanghai are required to beef up efforts to avoid bad loans from development loans.

China has introduced several measures in the housing market since April to cool off speculation and out-of-control price rises.

The State Council, China's Cabinet, in late April raised the minimum down-payment on second-home mortgages to 50 percent from 40 percent.

An extra 10 percent interest rate must be applied to the second mortgage.

For those who buy three or more homes, even higher requirements should be levied on both down payments and interest rates.

Banks are also advised to suspend third home mortgages in cities where housing prices rise too rapidly.

In Shanghai, sales of new homes, as measured by volume, plunged 56 percent to 3.57 million square meters during the first half of this year amid walk-out buyer sentiment.