Asia-Pacific investors including those in the Philippines have started to worry about the exposure of banks to the weakening property sector in the region.

Credit watchdog Standard and Poors said in its report "How The Property Downturn Is Hitting Asia-Pacific Banks": "Take property, add banks, and you have the ingredients for contagion."

"These thoughts are on the minds of investors as Asia-Pacific grapples with high rates and sharp drops in home sales in key markets, particularly China," S&P added.

S&P said the report was derived from a webinar for analysts and market participants titled "Will Property Downturns Hit Asia-Pacific Banking Systems?"

Regulation, capital strong

S&P, nonetheless, said worry is not necessary yet.

"We view the unfolding strains as broadly manageable across Asia-Pacific banking systems. Asia-Pacific lenders are built to withstand the frequent bouts of volatility that roll through Asia-Pacific. Institutions are adequately capitalized and closely regulated," it said.

It, however, advised vigilance and caution as the situation can turn for the worse.

"We caveat this by noting that property markets can quickly move from downturn to crisis. The heavy leverage of the sector, the high involvement of individual homeowners alongside developers and investors, and the potential for spillover to banks have triggered many property-led contagion events in recent history, not least the global financial crisis," S&P warned.

"Investors are increasingly asking us about banks' exposure to property," Gavin Gunning, Global and Asia-Pacific sector lead for financial institutions ratings, said.

"This is not exclusively for the Chinese market, which has weathered a pronounced downturn for two years now, and counting. Commercial vacancy rates in Malaysia are high, and the big developers in Vietnam are highly leveraged," Gunning said.

"Downside risks for Asia-Pacific banks associated with property are both numerous and nuanced and could intensify, upsetting our base case for relative ratings stability," Gunning said.