China's banking regulator plans to lower the amount of funds banks need as provision against soured loans, Caixin reported March 6, citing a note from the China Banking Regulatory Commission, or CBRC.
The CBRC plans to cut banks' loan-loss provision ratio to as low as 120% from the current 150%. It also intends to relax the minimum ratio of provisions to total loans to 1.5% from 2.5%.
The application of the new ratios will vary from bank to bank and will be based on lenders' willingness to classify more loans as bad debt or their ability to write off new nonperforming loans. Banks that classify all loans that are 90 days overdue as NPLs will qualify for the lower 120% loan-loss provision ratio and 1.5% provision-to-total loans ratio. Banks that classify less than 70% of such overdue debt as NPLs will need to stick to the current ratios of 150% and 2.5%.
The move is expected to help banks improve profit after the current standards left lenders struggling to make profits, the report said. Banks have been lobbying to loosen the requirements as interest-rate liberalization squeezed their net interest margins, and income from fees and commissions failed to boost their profits.
