CBRC of­fers hope on bad loans

China Daily (Canada) - - ACROSS CANADA - By LI XIANG lix­i­ang@chi­nadaily.com.cn

China’s bank­ing reg­u­la­tor said onWed­nes­day that it was will­ing to con­sider more tar­geted and dy­namic pro­vi­sion reg­u­la­tions for lenders, amid grow­ing con­cerns that ris­ing bad loans are erod­ing the sec­tor’s prof­itabil­ity.

The China Bank­ing Reg­u­la­tory Com­mis­sion said it was mon­i­tor­ing the pro­vi­sion re­quire­ments of banks and will carry out case-by-case stud­ies on in­di­vid­ual lenders to help them deal with ris­ing bad loans.

Liao Yuanyuan, deputy di­rec­tor of the pol­icy re­search bureau at the CBRC, said that the reg­u­la­tor wants to main­tain con­ti­nu­ity in its reg­u­la­tions. What this es­sen­tially means is that, the loan-loss pro­vi­sion ra­tio, a key mea­sure of banks’ risk-con­trol ca­pa­bil­ity, will re­main un­changed.

The LLP ra­tio is a re­quire­ment for cap­i­tal that needs to be set aside by banks for fu­ture losses from non­per­form­ing loans. Chi­nese banks are re­quired to have a min­i­mum ra­tio of 150 per­cent.

The reg­u­la­tor’s com­ments came af­ter the coun­try’s ma­jor lenders, in­clud­ing In­dus­trial and Com­mer­cial Bank of China Ltd, have been re­port­edly lob­by­ing the reg­u­la­tor to loosen the pro­vi­sion re­quire­ments against the back­drop of a slower econ­omy and grow­ing pres­sure on banks’ busi­ness op­er­a­tions.

Banks have been fac­ing head­winds like slower profit growth and ris­ing bad loans as sec­tors like manufacturing, whole­sale and re­tail, which make up the ma­jor source of banks’ NPLs, con­tin­ued to be un­der pres­sure.

The profit growth of ma­jor State-owned banks dropped be­low 1 per­cent in the third quar­ter while their NPLs have been on the rise.

By the end of Septem­ber, the to­talNPLra­tio of the coun­try’s com­mer­cial banks rose to 1.59 per­cent, up from 1.50 per­cent at the end of June, ac­cord­ing to the reg­u­la­tor. Mean­while, the LLP ra­tio dropped to 167.7 per­cent at the end of Septem­ber from 198.4 per­cent three months ear­lier.

Someof the big State-owned banks have seen their LLP ra­tio inch to­ward the reg­u­la­tory red line, of­fer­ing them lit­tle room to lever­age the ra­tio to ex­pand their profit mar­gins, an­a­lysts said.

Some bank­ing ex­perts have said that it is nec­es­sary for the reg­u­la­tor to loosen the pro­vi­sion ra­tio re­quire­ment and to pro­mote the se­cu­ri­ti­za­tion of NPLs so as to of­fer banks more lever­age to deal with the cur­rent tough sit­u­a­tion.

Nonethe­less, the era of easy prof­its for Chi­nese banks will likely come to an end af­ter the Chi­nese cen­tral bank fully lib­er­al­ized the in­ter­est rates by scrap­ping the cap on de­posit rates, an­a­lysts said.

David Yin, a financial an­a­lyst at global credit rat­ings agen­cyMoody’s In­vestors Ser­vice Inc, said in a re­search note that the shrink­ing in­ter­est mar­gins may prompt banks to seek higher loan yields by in­creas­ing their ex­po­sure to higher-risk clients, thereby putting their risk-con­trol ca­pa­bil­i­ties at risk.

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