China tightens necessities on classifying banks’ asset dangers


SHANGHAI (Reuters) – China on Saturday tightened danger administration necessities on banks, requiring them to categorise financial-asset dangers in a well timed and prudent method, in a bid to higher assess lenders’ credit score dangers.

From July 1, banks should classify belongings past the at the moment required loans – together with bond funding, interbank lending and off-balance-sheet belongings – into 5 classes starting from “regular” to “loss”, in keeping with guidelines revealed by the central financial institution and the banking and insurance coverage regulator.

The foundations will assist “industrial banks consider credit score dangers extra precisely and mirror the true high quality of their monetary belongings,” mentioned the Individuals’s Financial institution of China and the China Banking and Insurance coverage Regulatory Fee (CBIRC).

Present guidelines are insufficient as a result of “in recent times, the asset construction of China’s industrial banks has modified rather a lot, and danger classification faces many new conditions and issues,” the CBIRC mentioned. The brand new guidelines, it mentioned, will assist forestall credit score dangers extra successfully, the regulator mentioned.

The foundations will apply to banks’ new enterprise. They’ve till the top of 2025 to reclassify present monetary belongings.

The authorities had already urged banks to step up lending and bond purchases to help restoration on the planet’s second-biggest economic system, after a surge in COVID-19 infections and issues within the huge property sector. New financial institution loans jumped greater than anticipated in January to a document 4.9 trillion yuan ($720 billion).

Saturday’s guidelines urge banks to scrutinise the underlying belongings once they classify dangers for asset administration or securitisation merchandise.

Lenders may also be required to strictly abide by the principles when assessing credit score dangers in debt restructurings. An rising variety of property builders face restructuring as they battle to satisfy reimbursement obligations.

Industrial banks ought to carry out danger classification of all monetary belongings a minimum of as soon as 1 / 4, they usually should “strengthen the monitoring, evaluation and early warning” of the dangers, and take preventive measures in a well timed method, the principles say.

(Reporting by Shanghai Newsroom; Enhancing by Clarence Fernandez and William Mallard)