One senior banking official, who declined to be named, said the current upward moves in bank interest rates beyond Reserve Bank levels were as much a result of the banks' need to factor in growing business risk stemming from these huge loans as a result of the sub-prime meltdown.

Struggling shopping centre giant Centro, which is expected to emerge from a self-imposed trading suspension today, is one of several property groups believed to be suffering from over-inflated valuations.

It is understood the "package" of assets that Centro has offered to lenders as collateral for its $1.3 billion debt refinancing is now worth as little as $750-800 million, due to huge overvaluations on its assets and a scarcity of buyers in the current market.

"In these boom times all the major (property) groups have been borrowing money against property using friendly valuers, and several banks have been happy to accept those friendly valuations," one senior banker said.

"But now it's all come to a screaming halt and everyone's holding these valuations and they don't know what to do with them."

The problem was most prolific among smaller property development and property holding companies with bank loans of between $50 million and $100 million, he said.

One financier said many "cowboy" borrowers at that level had run into trouble and some banks had simply accepted new "friendly" valuations rather than call in the receivers, believing those borrowers would work themselves out of trouble.

He said such additional loans would typically cover borrowers for a further six months in interest payments.

"This has been going on for 12 months and the banks have just relented and relented based on additional valuations," he said.

"They thought they'd get it back and now they're being caught out."

The two listed arms of Centro - Centro Properties Group and Centro Retail Group - were suspended from trading on Friday amid squabbling by the group's Australian lenders over about $3.5 billion in loans.

The trading halt came the day after more than 20 per cent was shed from the value of the groups in heavy trading following reports that the shopping centre giant was in discussions with the corporate regulator.

It is understood property giant ING is hovering over Centro's $1.3 billion refinancing "package" in the event Centro is forced to sell the properties it was offering as collateral.

ING is believed to be in a position to pay cash quickly for those assets but would only be interested in buying at well below valuation.

Industry players say the problem of overvaluations was fuelled by the introduction of reporting under the Australian International Financial Reporting Standards in 2005.

Under AIFRS, property groups post any gains in the value of their assets to the revenue line for the current period, rather than simply adjust asset accounts as was previously the case.

As a result, listed property companies have been delivered huge revenue gains on the back of property valuations, which many in the industry say has tended to encourage unscrupulous valuations.