China property market a sovereign rating concern - Fitch

HONG KONG (Reuters) - China's red-hot property market is a concern for its sovereign credit rating because of the threat of worsening asset quality in the banking system, Fitch Ratings said on Tuesday.

"China is the most obvious area of concern," James McCormack, managing director of Asia Pacific sovereign ratings at Fitch, said in a Reuters chat room forum.

Chinese property and stock prices have surged this year, helped by very loose monetary policy and aggressive bank lending.

"The China property issue raises some concerns with respect to asset quality in the banks. The banking system is a sovereign rating weakness. Clearly banks in any country with a property bubble would be affected, but banks in China are, as noted, already a weakness."

Chinese banks extended a total of 8.67 trillion yuan ($1.2 trillion) in new loans in the first nine months, 75 percent more than all of 2008, triggering concern about potential new bad loans ahead.

Liu Mingkang, chairman of the country's banking regulator, warned last month about the risks of such strong credit growth and told banks to lend at a more "reasonable" pace.

PHILIPPINES DEFICIT TO RISE

McCormack expected the Philippines' budget deficits to overshoot this year and next, and that means the country's debt levels "will deviate further from the rating peer group."