A person walks past the People’s Bank of China (PBOC) constructing on July 20, 2022 in Beijing, China.
Jiang Qiming | China News Service | Getty Images
China on Saturday tightened risk management requirements on banks, requiring them to categorise financial-asset risks in a timely and prudent manner, in a bid to higher assess lenders’ credit risks.
From July 1, banks must classify assets beyond the currently required loans – including bond investment, interbank lending and off-balance-sheet assets – into five categories starting from “normal” to “loss”, in line with rules published by the central bank and the banking and insurance regulator.
The principles will help “business banks evaluate credit risks more accurately and reflect the true quality of their financial assets,” said the People’s Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC).
Current rules are inadequate because “lately, the asset structure of China’s business banks has modified quite quite a bit, and risk classification faces many recent situations and problems,” the CBIRC said. The brand new rules, it said, will help prevent credit risks more effectively, the regulator said.
The principles will apply to banks’ recent business. They’ve until the tip of 2025 to reclassify existing financial assets.
The authorities had already urged banks to step up lending and bond purchases to support recovery on the planet’s second-biggest economy, after a surge in Covid-19 infections and problems within the vast property sector. Recent bank loans jumped greater than expected in January to a record 4.9 trillion yuan ($720 billion).
Saturday’s rules urge banks to scrutinize the underlying assets once they classify risks for asset management or securitization products.
Lenders may even be required to strictly abide by the principles when assessing credit risks in debt restructurings. An increasing variety of property developers face restructuring as they struggle to fulfill repayment obligations.
Business banks should perform risk classification of all financial assets at the very least once 1 / 4, and they have to “strengthen the monitoring, evaluation and early warning” of the risks, and take preventive measures in a timely manner, the principles say.
