Banks are expected to issue more loans to support the development of affordable houses rather than issuing mortgages for personal investment on second and subsequent houses.

"The banking industry is facing many challenges, especially the risks related to local government funding vehicles, the property sector and overcapacity projects," said Liu Mingkang, chairman of China Banking Regulatory Commission, at a quarterly meeting held Wednesday.

Many banks have reportedly cut the interest discount from 30 percent to 15 percent on the mortgage for first house buyers. For second house, the mortgage remains 1.1 times the prime-lending rate, and no lending is allowed for third and subsequent houses, according to current policy.

The CBRC's call came after recent media reports that some banks resumed lending to third-home buyers.

About 60 percent of the 200 banks in 20 cities were still granting loans on third homes, with conditions requiring 50 or 60 percent down-payment and imposing 1.1 to 1.3 times the prime lending rates, according to the portal Sina.

Strict controls may lead to a change in the lending structure. The new lending will mainly support construction of affordable houses in the second half of the year, said Lu Ting, China economist with Bank of America-Merrill Lynch.

Last year, about 20 percent of new lending went to the property sector for residential and commercial building development and personal investment. The target of 7.5 trillion yuan ($1.11 trillion) in new loans should be enough for this year, Lu said.

Following the 9.6 trillion yuan ($1.4 trillion) of lending last year and 4.63 trillion yuan ($682.89 million) in the first half, fears of the rise of non-performing loans (NPLs) have arisen. Most banks appear to have low NPL ratios now, but they will show higher ratios in 2012, according to Orient Asset Management's report released this month.