China’s biggest banks well prepped on non-performing loans, ready for stricter reporting standard
- ‘Window guidance’ by top watchdog on recognising NPLs early unlikely to affect loans or impairment charges, say analysts
- Some banks have been using stringent conventions since as early as 2018
The fallout from a “window guidance” by the China Banking and Insurance Regulatory Commission on recognising non-performing loans (NPL) at more than 60 days overdue will be minimal, as the country’s big state-owned lenders have been making more stringent provisions since last year, analysts have said.
Window guidance is a more unconventional tool, where Beijing policymakers use dialogue rather than legislation to persuade banks towards a course of action. The latest guidance, which calls for practice more strict than the international method of recognising NPLs at more than 90 days overdue, has only been issued to China’s six biggest banks: Industrial and Commercial Bank of China (ICBC), Bank of China, China Construction Bank, Agricultural Bank of China, Postal Savings Bank of China and Bank of Communications (Bocom), analysts said.
The banks did not immediately respond to emails seeking comment on the guidance, which they revealed to analysts during first-quarter briefings recently.
Jack Chan, managing partner for Greater China financial services at EY, said some of these banks have been using more stringent NPL-recognition practices as an internal risk-management exercise. Some of them were recognising loans as non-performing as early as 30 days.
“Senior management at these banks has been willingly recognising NPLs earlier, as part of efforts to put pressure on loan officers, to not relax their loan vetting and underwriting standards when approving a borrower,” Chan said.
He said the banks were motivated to apply such strict standards as they saw it as stress-testing for situations where, for instance, a deterioration in macroeconomic factors could impair their borrowers’ ability to repay loans.