China's banking regulator is scrutinising property sector loan portfolios of some local and foreign lenders to assess systemic risks, sources with knowledge of the matter said, as the real estate sector's debt crisis worsens.

As part of their assessment, the China Banking and Insurance Regulatory Commission (CBIRC) is looking at banks' loan book exposure to developers to find out if those credit decisions were made according to the rules, one of the sources said.

The aim of the latest regulatory probe is to measure risks to the financial system from the ongoing property sector turmoil in the world's second-largest economy, two of the sources said.

The CBIRC did not respond to Reuters requests for comment.

All the sources declined to be named due to the sensitivity of the matter.

The move comes as policymakers have been trying to stabilise the property sector that accounts for a quarter of the economy after a string of defaults among developers on their bond repayments and a slump in home sales.

The investigation underscores the challenges for Beijing in its efforts to encourage banks to extend fresh loans to embattled real estate developers, while managing lending risks.

Property loans accounted for 25.7% of total banking sector credit in China as of end-June, Chinese central bank data showed. The banking sector's total outstanding loans was 206 trillion yuan ($30.3 trillion) at the end of the first half.

The debt crisis in China's property sector worsened in recent weeks after a large number of homebuyers threatened to stop making their mortgage payments for stalled property projects, aggravating a crisis that has already hit the economy and could lead to social instability.

The CBIRC is also asking some developers for details of their cash positions and the source of money for debt repayments, a third banking source said. The probe is different to the routine self-reporting the regulator requires from banks.

Beijing's launch of tough leverage rules for developers in recent years has led to cashflow issues for many, leaving some scrambling from one month to the next to pay upcoming debt and sometimes failing.

"The regulator wants to know how to tailor policy and assess risk," said one banker at a foreign lender, who has been asked for property sector-related lending documents over the last couple of weeks.

The investigation is very detailed and loan officers are being approached multiple times, sometimes over many weeks for additional documents on lending to specific developers, two of the sources said.

The rise in mortgage defaults raises risks for banks and developers.

"The risk of new NPLs (non-performing loans) will remain a threat to banks' asset quality," said rating agency Moody's in a June note.

The property sector credit trouble is at risk of seeping into secondary industries such as asset management companies, privately-owned construction firms and small steelmakers, said Fitch Ratings in an August note.

($1 = 6.7890 Chinese yuan)

(Editing by Sumeet Chatterjee and Jacqueline Wong)