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Agricultural Bank of China

China may cut bad debt provision for seven listed banks

PUBLISHED : Tuesday, 22 March, 2016, 9:34am
UPDATED : Tuesday, 22 March, 2016, 8:41pm

The China Banking Regulatory Commission (CBRC), China’s top banking watchdog, will lower the bad debt provision ratio for seven listed banks, media outlet Caixin reported.

Three of the big four state-owned banks – Agricultural Bank of China, China Construction Bank and Bank of China – are likely to lower the provision ratio to 130 per cent. Industrial and Commercial Bank of China, the biggest of the “big four” and the biggest bank in the world by assets, is likely to lower the ratio to 140 per cent, along with Bank of Communications, China Merchants Bank and Industrial Bank.

Other banks will still follow the stipulated bad debt provision ratio pf more than 150 per cent, according to Caixin.

Provision should be set in reverse to the economic cycle. When economic development is good, this indicator could be set a little lower
Li Lihui, banker

China’s weakening economy has undermined borrowers’ ability to repay loans, raising Chinese banks’ non-performing loans to 1.27 trillion yuan by December, the highest level since 2006, shows CBRC’s official data. The top leadership’s push for supply-side reforms cutting oversupply is also placing stress on banks’ asset quality.

Shang Fulin, head of the CBRC, said earlier this month that Chinese commercial banks’ capital adequacy ratio rose to 13.45 per cent at the end of last year and the loan loss provision ratio was a comfortable 181 per cent. He also said some international rating agencies are misguided in downgrading China’s sovereign and bank ratings.

Li Lihui, the former president of Bank of China, told the South China Morning Postearlier that China could lower the minimum provision ratio, measured against the level of soured credit, to 100 per cent or 120 per cent.

“Provision should be set in reverse to the economic cycle. When economic development is good, this indicator could be set a little lower,” he said.

Beijing has been emphasising exploring ways to digest the high debt ratio in the Chinese economy.

Premier Li Keqiang singled out debt-for-equity swaps as a way to “progressively reduce corporate leverage”, as he talked to global reporters during the post-National People’s Congress press conference last week.

Zhou Xiaochuan, governor of the People’s Bank of China, said on Monday that China should “accelerate capital market development” so that direct financing from the stock market could reduce the debt to GDP ratio and the debt to equity ratio.