China Hopes to Increase Lending by Lowering Banks’ Required Provisions for Loan Losses
What’s new: China will temporarily lower the required ratios of provisions for losses from nonperforming loans (NPLs) for small and midsize banks by 20 percentage points, China’s State Council said in a statement following a Tuesday meeting chaired by Premier Li Keqiang.
What’s the background: In early 2018, the country’s banking watchdog adjusted the requirements of banks’ loan-loss provisions to between 120% and 150% of their NPLs from the previous 150% floor. The provisions are money set aside to cover potential losses from loan defaults.
Zeng Gang, a deputy director of the National Institution for Finance and Development, a government-linked think tank, said that the latest policy can reduce some small and midsized banks’ regulatory compliance costs and help them better support the real economy.
China’s banking system had more than 6 trillion yuan ($847.2 billion) of provisions for credit losses at the end of February, accounting for 181% of NPLs, according to official data (link in Chinese).
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