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BEIJING, April 30 (Reuters) - China’s banking regulator issued draft rules on Tuesday requiring lenders to include more types of assets when assessing risks, in a move to tighten oversight of banks’ asset quality as part of Beijing’s efforts to prevent financial risk.
The draft rules require lenders to recognise not only bad loans but also defaulted bonds, souring interbank assets and off-balance sheet businesses as non-performing assets, and that the lenders should set aside more capital as buffers, the China Banking and Insurance Regulatory Commission (CBIRC) said.
China’s big banks have sharply increased capital provisions for bad loans to cushion themselves against a slowdown in the world’s second-biggest economy. Top lender Industrial and Commercial Bank of China plans to raise more capital by selling perpetual bonds.
“With the rapid development of the banking sector in recent years, the proportion of loans in financial assets has generally declined, and non-credit assets have increased significantly,” the CBIRC said in a statement.
“Many banks haven’t conducted thorough information checks on the assets they hold, and it is difficult to grasp the real risks,” it said.
The draft rules also require banks to classify loans that are more than 90 days overdue as non-performing loans (NPLs), even if those loans are backed by collateral, the CBIRC said.
If a borrower can’t repay at least 5 percent of its total loans from all lenders within 90 days, then all loans to that borrower should be classified as NPLs, it said.
Lenders should implement the rules by the end of 2019, and for those with difficulties meeting the deadline, they will be given a grace period until the end of 2020, the CBIRC said. (Reporting by Cheng Leng and Ryan Woo Editing by Nick Macfie)