BEIJING (Reuters) - A 50-percent drop in China's property prices will lead to a surge in bad real estate loans for Chinese lenders, a local newspaper reported, citing the results of the latest round of a Chinese bank stress test.

Many Chinese banks reported less-than-1-percent ratio in non-performing loans (NPL) to home buyers, but halved housing prices may expand the volume of such loans, pushing up the ratio by another 1-2 percentage points, the 21st Century Business Herald reported, citing banking sources.

China Merchants Bank <3968.HK> <600036.SS>, which reported a tiny NPL ratio of 0.12 percent in mortgage loans at the end of June, would see the ratio jump by up to 2 percentage points, the paper reported.

Loans to finance purchase of existing homes, especially those granted in 2009 and 2010 when housing prices surged in major Chinese cities, are particularly vulnerable, it added.

But the paper added the overall asset quality of Chinese banks would remain sound in the extreme scenario as outstanding property loans accounted for less than a fifth in overall bank lending.

Outstanding loans to property developers and home buyers stood at 8.71 trillion yuan ($1.28 trillion) at the end of June, or 18 percent of the overall loan books, according to statistics from the Chinese central bank.

China's banking regulator has instructed lenders to test the impact of a fall in house prices of up to 50 percent in key cities in early August, but the regulator added that hypothetical scenarios examined in stress tests did not reflect its forecasts nor did they herald any change in policy.

(Reporting by Zhou Xin, editing by Miral Fahmy)