CBIRC Projects ¥3.4tr in Bad Loans for 2020, More in 2021

Source: Regulation Asia Editors, Regulation Asia 2020-08-18

CBIRC chairman Guo Shuqing says banks should prepare by replenishing capital, increasing provisioning, and improving risk management.

CBIRC (China Banking and Insurance Regulatory Commission) chairman Guo Shuqing has said the banking industry will have about CNY 3.4 trillion (USD 489 billion) in bad loans to dispose of in 2020, compared to CNY 2.3 trillion in 2019, but that the problem could be even worse in 2021.

“The disposal efforts next year will be even greater. Because many loans have been postponed, some problems will not be exposed until next year,” Guo said in a Xinhua interview Thursday (13 August).

According to Guo, the Covid-19 epidemic has interrupted the sales of well-run companies and compressed their orders, making the rebound of non-performing loans “inevitable”.

“At present, the economy has not fully recovered, the epidemic situation still has great uncertainty, and the financial risks brought by it also exist,” Guo said. “With a time lag, it is expected that the risk of a considerable amount of loans will be exposed later.”

Guo said that it is necessary to plan early and actively respond. In line with this, banks should classify assets based on quality, and use the ECL (expected credit loss) method to assess loan risks. Banks will also need to replenish capital, increase provisioning, and improve risk management to reduce loan losses, he said.

The increase in bad loans will put particularly high pressure on small and medium-sized institutions, Guo said, pledging to ramp up reform efforts to enhance direct financing of these institutions (through stock and bond issuance) and improve corporate governance. “It is necessary to accelerate the reform of small and medium-sized banks as a breakthrough to enhance the soundness of the financial institution system,” hesaid.

He also said the CBIRC will continue to encourage cooperation between local and foreign institutions. “Although the current international environment has undergone major changes, this will not change our general trend of opening to the outside world.” he said, reflecting comments from PBOC (People’s Bank of China) governor Yi Gang just days earlier.

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CBIRC Projects ¥3.4tr in Bad Loans for 2020, More in 2021

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