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China tightens bank asset risk classification requirements

SHANGHAI (Reuters) – China on Saturday tightened risk management requirements for banks, requiring them to timely and prudently classify financial asset risks to better assess banks’ credit risk.

From July 1, banks must classify assets other than loans currently required – including bond investments, interbank lending and off-balance sheet assets – into “normal ” to “loss” five categories of central banks and bancassurance regulators.

The rule will help “commercial banks assess credit risk more accurately and reflect the true quality of their financial assets,” the People’s Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC) said.

The current rules are imperfect because “in recent years, the asset structure of my country’s commercial banks has undergone great changes, and risk classification faces many new situations and problems,” the China Banking and Insurance Regulatory Commission said. The regulator said the new rules would help guard against credit risks more effectively.

The new rules will apply to new businesses for banks. They have until the end of 2025 to reclassify existing financial assets.

Authorities have urged banks to step up lending and bond buying to support the recovery of the world’s second-largest economy amid COVID-720 After a surge in infections and problems in the broader real estate sector. New bank loans rose more than expected in January to a record 4.9 trillion yuan ($720 billion).

Risk classification for asset management or securitization products.

Lenders will also be required to strictly follow the rules when assessing the credit risk of debt restructuring. A growing number of real estate developers are facing restructuring as they struggle to meet their repayment obligations.

Commercial banks should carry out risk classification of all financial assets at least once a quarter, and “strengthen monitoring and analysis of risk warnings” and take preventive measures in a timely manner.



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