Home » Banking » China to mull minimum bad-loan coverage

China to mull minimum bad-loan coverage

Bloomberg

China’s cabinet has discussed lowering the ratio of provisions banks must set aside for bad loans, potentially easing a drag on earnings after soured debts at lenders climbed to the highest in a decade.
The China Banking Regulatory Commission would be responsible for deciding the timing and magnitude of any reduction, said people with knowledge of the matter, who asked not to be identified as the deliberations are private. Some big banks have already used a ratio of around 120 percent for their 2016 budgeting, two of the people said. The minimum ratio is currently set at 150 percent.
The highest level of soured loans in a decade has hurt bank profits and cut their bad-loan coverage ratios close to the regulatory minimum. That’s prompted lenders including Industrial & Commercial Bank of China Ltd. to urge regulators to ease the requirement, which would give banks more scope to lend and bolster an economy that grew last year at the slowest pace in a quarter century.
“The high coverage ratio was set when the asset quality was still great, so that the banks could prepare themselves before things get out of hand,” said Chen Shujin, an analyst at DBS Vickers Hong Kong Ltd.
“The 150 percent coverage ratio doesn’t really make sense now. A lower coverage ratio would help reflect more realistic asset quality for banks and help with their profit growth.”
Growth Target
CBRC’s press office didn’t immediately return calls seeking comment, while the state council’s information office didn’t immediately reply to a fax request for comment.
In cutting the minimum coverage ratio for bad loans, the government would be taking yet another step in making more funds available for the nation’s flagging economy.
The National Development and Reform Commission plans to offer 400 billion yuan ($61 billion) this quarter under a special bond program so local authorities can finance infrastructure, people familiar with the matter said earlier.
The weaker economy has undermined borrowers’ ability to repay loans, boosting Chinese banks’ nonperforming loans to 1.27 trillion yuan ($195 billion) by December, the highest level in a decade, CBRC data released Monday
show.

Leave a Reply

Your email address will not be published. Required fields are marked *

Send this to a friend