Caixin
Jun 10, 2020 03:59 AM
FINANCE

Exclusive: Chinese Banks Told to Shrink Loan-Loss Provisions and Lend More

What's New: China’s top banking regulator slashed the amount of money small and midsize banks have to keep on hand to cover losses from bad loans, aiming to bolster lending to virus-stricken businesses, Caixin learned.

The China Banking and Insurance Regulatory Commission (CBIRC) issued a notice making the change, people with knowledge of the matter said. The document hasn’t been made public, but some banks received instructions from local regulators to make the adjustment, the sources said.

The move will further reduce banks’ requirements for loan-loss provisions from the current range of 120%–150% of nonperforming loans. The ratio requirement will vary from bank to bank based on actual conditions, a person close to the matter said. The CBIRC didn't reply to a Caixin inquiry.

“This is a temporary policy arrangement for the pandemic period,” the source said.

Background: The State Council pledged in late April to cut the required loan-loss provision for smaller banks by 20 percentage points to reduce lenders’ regulatory compliance costs and encourage them to better support the real economy.

China adjusted the requirement once in early 2018, lowering the ratio to 120%–150% from the previous 150% floor. As of the end of March, Chinese commercial banks held a total of 4.8 billion yuan in loan-loss provisions, an average ratio of 183.2% of bad loans, CBIRC data showed.

Quick Takes are condensed versions of China-related stories for fast news you can use. To read the full story in Chinese, click here.

Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bobsimison@caixin.com)

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