Bad bank loans have reached a six-year high as China’s housing market continues to slow along with the nation’s economy. Now, Standard & Poor’s warns lenders in the world’s second-largest economy are understating their exposure to the slumping real estate market. If the downturn persists for at least a year or two, experts say, it could increase credit risks and slow the economy even more.

S&P said in a report released earlier this week real estate development and construction lending represented nearly 14 percent, or 8.3 trillion yuan ($1.34 trillion), of all loans as of the end of 2013. But banks are reporting 7 trillion yuan (about $1.14 trillion) in property development loans on their books. The difference is hidden in shadow-lending practices where banks keep loans off their books by using financial intermediaries, also known as “shadow banks”.

“Shadow banks, which barely existed before China’s credit surge in 2009, now hold assets of at least 30 trillion yuan ($4.9 trillion), or more than 50 percent of GDP [gross domestic product],” The Economist reported in September, citing data from ANZ bank. Shadow banks in China lend to state-owned enterprises because they have the backing of state and local governments and are less likely to default.

Real estate prices in China have been falling since May, and the downturn is the main factor behind the country’s slower growth. S&P says as much as 40 percent of company lending is backed by real estate collateral, so a prolonged downturn in the property market would hit corporate lending hard, exacerbating any prolonged slump.

Last month, China cut its benchmark interest rate for the first time in two years in response to the slowdown in the property market, which makes up 15 percent of the country’s economy and drives growth in dozens of industries, including steel and cement.