China's mounting debt has increased the risk of a banking crisis in the next three years, a global financial watchdog said.

The credit-to-gross domestic product (GDP) gap of the world's No. 2 economy hit a high of 30.1 in the first quarter of 2016 - three times above what is considered the danger level, the Bank of International Settlements (BIS) said in a quarterly report released on Sunday.

According to the Basel-based BIS, a level that is above 10 indicates that a crisis could occur in "any of the three years ahead".

The gap, which is a warning indicator of bank stress, is derived by comparing a country's borrowing in relation to the size of its economy with the ratio's long-term trend.

A high number signals excessive credit growth, which "could sow the seeds for potential financial strains", said the BIS.

China's score is the highest of all 41 countries surveyed, including the United States, Japan and Singapore.

Since the global financial crisis in 2008, China had gone on a credit binge in a bid to boost growth. Its total debt surged to 168 trillion yuan (S$34 trillion) at the end of last year, or 249 per cent of GDP, based on estimates by the Chinese Academy of Social Sciences.

Analysts told The Straits Times that while China's rising debt has been a serious cause for concern in recent years, it is unlikely to spark a banking crisis.

"This is a known risk that everyone is aware of. Usually a crisis occurs when there is an unknown problem," said DBS senior economist Chris Leung.

"The Chinese government understands the scale of the problem but it's not something it can deal with in a short period of time," said Mr Leung, and this latest report just "reconfirms the unhealthy state of the Chinese economy".

Last month, in an annual review of China's economy, the International Monetary Fund urged Beijing to make it a priority to slow credit growth and put in "a comprehensive strategy and decisive measures to address the corporate debt problem".

Recognising that a debt-fuelled growth is unsustainable and could drive the country into a recession, Chinese President Xi Jinping has called for a series of supply-side reforms.

But Standard Chartered's chief China economist Ding Shuang pointed out that there is "no chance" in the next two years that China's debt levels will go down, given its growth targets of 6.5 per cent a year.

"Our view is that its debt level will be on track to reach 300 per cent (of GDP) by 2020," said Mr Ding.

That said, he thinks China's strong government balance sheet and a relatively closed capital account will help shield it from a full-blown banking crisis.

"The government has the ability to write off bad debts and recapitalise the banks. And given that the debts are mostly domestic, in theory they could be refinanced," he added.

Mr Leung noted it will be a slow and painful process for Beijing to wean the economy off its credit binge.

He said the statistics released by China's central bank last week showed that debt levels have continued to climb.

New bank loans in August more than doubled from the previous month, on the back of strong demands for housing loans.

"The policymakers are torn between structural reforms versus containing the cyclical downturn," said Mr Leung.