Bank regulators, seeking to balance development and risk control in tough times, have set new goals for commercial lenders.
Wen Xiu, Caijing 21 January 2009
The China Banking Regulatory Commission (CBRC) has stressed that it will neither relax lending rules nor tolerate an increase in bad loans in 2009, countering a news report that said CBRC had proposed the policy changes.
At a national, closed-door banking industry conference January 12 in Beijing, CBRC said commercial banks should make sure non-performing loans (NPLs) do not return to high levels of the past, and that NPL ratios should be controlled at year-end 2008 levels.
In addition, CBRC plans to alter a key requirement by replacing its “double deduction” rule with what’s considered a more practical “double control” approach.
The new guidelines would apply to commercial and savings banks but exclude rural credit unions, whose combined NPL ratio is above 5 percent. CBRC asked credit unions to continue “double deduction.”
Finding a proper balance for development through targeted lending and risk controls is a challenge for regulators, since Chinese banks are expected to watch the bottom line while supporting Beijing’s economic stimulus agenda.
On January 10, just before the banking conference, CBRC announced plans to amend some supervisory provisions. The move came in response to a government initiative aimed at loosening credit and bolstering economic development.
Regulators pledged to facilitate loan restructuring and bridge loans, and to support commercial banks that lend more in 2009, provided that good risk control is maintained.
After the CBRC conference, commercial banks devised gradually progressive lending plans for 2009. Their collective goal is a firm, gradual approach to lending, not a “great leap forward.”
Two major banks -- ICBC and China Construction Bank – set preliminary growth targets for 2009 lending that are close to last year’s increases, Caijing learned.
ICBC, the nation’s largest bank, decided to boost lending by 500 billion yuan – an amount nearly equal to last year’s increase over its 2007 loan level. Meanwhile, CCB plans to hike lending 16.5 percent over last year by adding 508 billion yuan to its 2009 credit pot – about the same amount of money added last year compared with 2007.
Samuel Chen, vice president of Asia Pacific Equity Research at JP Morgan, said loans would inevitably rise, and that banks should pay more attention to write-offs and recovering bad debts.
Zhou Zhongming, chief of the Shandong Province banking regulatory commission, told Caijing maintaining capital adequacy at reasonable levels is the most important goal for banks. And he said hedging potential risks is more important than “purely focusing on reducing NPLs.”
Regulators want China’s listed banks to weather the current financial storm with the right amount of debt provisions.
Shenzhen Development Bank announced it would increase its provision ratio to 105 percent from 48 percent by taking advantage of a big jump in its 2008 earnings. The bank’s NPL ratio fell to 1 percent from 4 percent.
Shenzhen Development Chairman and CEO Frank N. Newman said, “This is a prudent means to raise our risk control capability under the current macroeconomic conditions, as required by regulators.”
Zhou said additional lending by the nation’s banks would focus on large, infrastructure projects during the first half 2009.
Current economic conditions are expected to limit loan demand in other sectors of the economy, Zhou said. For example, he said, the real estate sector is expected to go through an adjustment that reduces project development and loans.
Loan restructuring is one kind of innovation. Financially troubled companies may get a chance to rework their loan terms with commercial banks, the CBRC directive said.
CBRC warned banks about potential risks of concentrated loan portfolios, lending to repay defaulted loans, structural debt and wealth management products. Meanwhile, CBRC said it would encourage loan restructurings in 2009 to help qualified companies affected by the global financial crisis.
A CBRC official said the State Council and central bank support a decision to update rules for loan repayment extensions, which now vary according to loan size. The current regulation does not account for the risk levels of borrowers, and deprives commercial banks of independence in determining customer risk levels.
A CBRC official said the update would not allow new loans to be issued to pay off defaulted loans – a risky strategy that can be a hidden motivation for loan restructuring deals. Regulators want to prevent commercial banks from covering old debt with new lending to mask asset conditions and true levels of bad loans.
However, companies hit by the financial crisis with solid fundamentals, professional management and competitive market shares can qualify for restructuring deals because they have a better chance to successfully rework loan terms, the CBRC official said.
Another policy innovation involves project loans. Regulators plan to extend the scope of project loans to include projects favoured by the central government’s economic stimulus plan, such as highways and other infrastructure ventures. CBRC also said it will encourage bridge loans for shareholders and project initiators.
Loan-to-deposit ratios may be loosened for small- to medium-sized banks, allowing them to exceed the 75 percent ratio currently required. Re-examining lending to small- to medium-sized enterprises is on the agenda as well.
Chen noted that the latest policy adjustment acknowledged what is already in practice, since some banks now exceed the required 75 percent loan-to-deposit ratio. With financial instruments and increasingly diversified capital resources for banks, some fast-growing commercial banks such as Minsheng Bank, Industrial Bank and Shenzhen Development broke the old rule.
While CBRC’s announcement is seen as encouraging for the industry, some experts say a collaboration of multiple government agencies will be needed to realize the reforms.
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CBRC: No ‘Great Leap’ for 2009 Lending
Bank regulators, seeking to balance development and risk control in tough times, have set new goals for commercial lenders.
Wen Xiu, Caijing
21 January 2009
The China Banking Regulatory Commission (CBRC) has stressed that it will neither relax lending rules nor tolerate an increase in bad loans in 2009, countering a news report that said CBRC had proposed the policy changes.
At a national, closed-door banking industry conference January 12 in Beijing, CBRC said commercial banks should make sure non-performing loans (NPLs) do not return to high levels of the past, and that NPL ratios should be controlled at year-end 2008 levels.
In addition, CBRC plans to alter a key requirement by replacing its “double deduction” rule with what’s considered a more practical “double control” approach.
The new guidelines would apply to commercial and savings banks but exclude rural credit unions, whose combined NPL ratio is above 5 percent. CBRC asked credit unions to continue “double deduction.”
Finding a proper balance for development through targeted lending and risk controls is a challenge for regulators, since Chinese banks are expected to watch the bottom line while supporting Beijing’s economic stimulus agenda.
On January 10, just before the banking conference, CBRC announced plans to amend some supervisory provisions. The move came in response to a government initiative aimed at loosening credit and bolstering economic development.
Regulators pledged to facilitate loan restructuring and bridge loans, and to support commercial banks that lend more in 2009, provided that good risk control is maintained.
After the CBRC conference, commercial banks devised gradually progressive lending plans for 2009. Their collective goal is a firm, gradual approach to lending, not a “great leap forward.”
Two major banks -- ICBC and China Construction Bank – set preliminary growth targets for 2009 lending that are close to last year’s increases, Caijing learned.
ICBC, the nation’s largest bank, decided to boost lending by 500 billion yuan – an amount nearly equal to last year’s increase over its 2007 loan level. Meanwhile, CCB plans to hike lending 16.5 percent over last year by adding 508 billion yuan to its 2009 credit pot – about the same amount of money added last year compared with 2007.
Samuel Chen, vice president of Asia Pacific Equity Research at JP Morgan, said loans would inevitably rise, and that banks should pay more attention to write-offs and recovering bad debts.
Zhou Zhongming, chief of the Shandong Province banking regulatory commission, told Caijing maintaining capital adequacy at reasonable levels is the most important goal for banks. And he said hedging potential risks is more important than “purely focusing on reducing NPLs.”
Regulators want China’s listed banks to weather the current financial storm with the right amount of debt provisions.
Shenzhen Development Bank announced it would increase its provision ratio to 105 percent from 48 percent by taking advantage of a big jump in its 2008 earnings. The bank’s NPL ratio fell to 1 percent from 4 percent.
Shenzhen Development Chairman and CEO Frank N. Newman said, “This is a prudent means to raise our risk control capability under the current macroeconomic conditions, as required by regulators.”
Zhou said additional lending by the nation’s banks would focus on large, infrastructure projects during the first half 2009.
Current economic conditions are expected to limit loan demand in other sectors of the economy, Zhou said. For example, he said, the real estate sector is expected to go through an adjustment that reduces project development and loans.
Loan restructuring is one kind of innovation. Financially troubled companies may get a chance to rework their loan terms with commercial banks, the CBRC directive said.
CBRC warned banks about potential risks of concentrated loan portfolios, lending to repay defaulted loans, structural debt and wealth management products. Meanwhile, CBRC said it would encourage loan restructurings in 2009 to help qualified companies affected by the global financial crisis.
A CBRC official said the State Council and central bank support a decision to update rules for loan repayment extensions, which now vary according to loan size. The current regulation does not account for the risk levels of borrowers, and deprives commercial banks of independence in determining customer risk levels.
A CBRC official said the update would not allow new loans to be issued to pay off defaulted loans – a risky strategy that can be a hidden motivation for loan restructuring deals. Regulators want to prevent commercial banks from covering old debt with new lending to mask asset conditions and true levels of bad loans.
However, companies hit by the financial crisis with solid fundamentals, professional management and competitive market shares can qualify for restructuring deals because they have a better chance to successfully rework loan terms, the CBRC official said.
Another policy innovation involves project loans. Regulators plan to extend the scope of project loans to include projects favoured by the central government’s economic stimulus plan, such as highways and other infrastructure ventures. CBRC also said it will encourage bridge loans for shareholders and project initiators.
Loan-to-deposit ratios may be loosened for small- to medium-sized banks, allowing them to exceed the 75 percent ratio currently required. Re-examining lending to small- to medium-sized enterprises is on the agenda as well.
Chen noted that the latest policy adjustment acknowledged what is already in practice, since some banks now exceed the required 75 percent loan-to-deposit ratio. With financial instruments and increasingly diversified capital resources for banks, some fast-growing commercial banks such as Minsheng Bank, Industrial Bank and Shenzhen Development broke the old rule.
While CBRC’s announcement is seen as encouraging for the industry, some experts say a collaboration of multiple government agencies will be needed to realize the reforms.
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