Banking regulator likely to tighten provision coverage ratio policies

The China Banking Regulatory Commission is mulling over a move to adjust the existing non-performing loan provision coverage ratio policies, requiring commercial banks to make the provision-to-total-lending ratio reach no less than 2.5 percent by the end of 2011 at earliest, according to a report by 21st Century Business Herald on Sept. 8.

According to the 2010 interim reports released by 15 listed banks, except for Agricultural Bank of China, which has a ratio of 3 percent, the total provision-to-lending ratio for most listed banks cannot meet the proposed requirement. Of them, joint-stock and municipal commercial small and medium-sized banks will be greatly affected by the proposed adjustment. The provision-to-total-lending ratio for the Bank of Ningbo stands at only a little more than 1 percent.

A source close to the banking regulator said frankly that against the backdrop of a reduction in the balance and ratio of non-performing loans for commercial banks, the material meaning of higher provision coverage ratio requirement will be limited. Adjusting the provision coverage ratio policies aims to reflect the actual non-performing loans situation.

"In the current positive economic cycle, although the non-performing loan ratio of commercial banks seems low and their provision coverage ratio seems high, the provision-to-total-lending ratio is actually not high," the unnamed source said. "The regulator aims to enable commercial banks to meet the provision coverage requirements in various economic circles. Even if the economy worsens in the future, the provision coverage ratio will be high enough for banks to face the adverse situation."