Risks that could lead to a property bubble are still building up in China, and more action is needed to cool speculative fervor, the country's banking regulator said on Tuesday.

In a report about last year's banking performance, the China Banking Regulatory Commission also asked lenders to strictly implement rules limiting mortgages to help rein in real estate prices.

There are still some irrational factors in the property market, the CBRC said.

The performance of the property market has a long-term and important impact on the sound and stable development of banking industry, it added.

It noted rising pressure on the balance sheets of some smaller banks and vowed to keep a close eye on the banks' liquidity conditions to prevent risks.

We will implement the system of monitoring the daily average loan-to-deposit ratio on a monthly basis this year, it said.

The CBRC has drawn up a tough new set of capital rules as part of efforts to implement Basel III guidelines, according to a document obtained by Reuters in February.

But the regulator did not mention the new capital rules in its annual report.

It reiterated that it would strictly control lending to financing vehicles used by local governments to circumvent restrictions on their incurring debt, which economists warn could fuel a rise in bad loans in coming years.

The clean up of local financing vehicles debts has shown initial results, but we should not relax our efforts to control later risks, the commission said in the report.

The CBRC also sounded a worried note about global economic prospects in 2011, citing uncertainties posed by the European debt crisis and ultra-loose monetary policies in developed countries.

The quantitative easing policies adopted by the U.S., European countries and Japan have added more pressure to emerging market inflation and asset prices, creating uncertainties for the world economy, it added.

Given this context, Chinese banks have to make full preparations for future difficulties, the CBRC said.

The Chinese banking industry still faces some challenges in 2011, given the changing and complicated situations at home and abroad, the report said.

(Reporting by Koh Gui Qing and Aileen Wang; Editing by Jacqueline Wong)

Japan China