China regulator to cut banks’ bad debt buffers: Report

SHANGHAI: China's banking regulator plans to reduce the amount of funds that banks must set aside to cover bad loans, two sources with direct knowledge of the situation said yesterday.

The China Banking Regulatory Commission (CBRC) plans to cut the provision coverage ratio for commercial banks to 120-150 per cent from 150 per cent, the sources said.

The move means banks will have more capital to work with and lend out to support economic activity, at a time when an official "deleveraging" crackdown has hurt their riskier and more lucrative operations.

The CBRC was not immediately available for comment.

The regulator said the effective date will be decided by local CBRC bureaus, one source said.

However, many of China's banks have already been operating below the 150 per cent redline.

The cut was reported earlier by Chinese business magazine Caixin. Last year, local media reported that seven listed banks planned to adjust their provision coverage ratio to between 130 to 140 per cent.

The CBRC also plans to set the loan provision ratio at 1.5 to 2.5 per cent from 2.5 per cent for commercial banks, said the two sources, who saw a document detailing the changes.

In adjusting provisions, regulators should take into account each bank's individual circumstances, capital ratios and the extent of bad loan write-offs among other things, they added.

China aims to expand its economy by around 6.5 per cent this year, the same as last year, while pressing ahead with its campaign to reduce risks in the financial system, Premier Li Keqiang said on Monday.

Chinese commercial banks' non-performing loan ratio steadied at 1.74 per cent at the end of December, unchanged from the end of the third quarter, the CBRC said. - REUTERS