China cuts amount of funds banks are required to set aside for bad loans
China Banking Regulatory Commission ditches ‘one size fits all’ approach and will assess banks individually
China’s banking regulator has eased the amount of funds banks have to set aside for bad loans, which could free up more funds for lending by commercial banks.
The minimum loan loss provision for Chinese banks was lowered to a range between 1.2 and 1.5 times the amount of impaired loans, instead of the 1.5 times before, according to a document released by the China Banking Regulatory Commission dated February 28, seen by the South China Morning Post but not posted publicly. The commission did not respond to a request for comment by the Post.
The new regulation is an adjustment of the previous “one size fits all” approach, which stated that a unified minimum provision coverage for impaired loans be imposed, despite each bank’s capital adequacy and the number of bad loans.
“The measures, if realised, are quite significant for banks because they can impact their balance sheets. Cutting provisions would mean banks have more capital and can shore up their profitability. For those that are close to touching the 150 per cent red line now, they can use it to improve their balance sheets. But not all banks have the need to do so,” said Zhao Yarui, a senior researcher at Bank of Communications in Shanghai.
