China's Banking Regulator to Require 2.5% Loan-Loss Reserves, Guosen Says
China’s banking regulator is drafting a plan requiring banks to maintain loan-loss reserves equivalent to 2.5 percent of total lending, according to Guosen Securities Co.
The regulation may go into effect next year, Guosen analyst Qiu Zhicheng wrote in a note distributed to clients today, citing an unidentified China Banking Regulatory Commission official speaking at a financial conference hosted by the securities firm.
China’s banking stocks fell today on concern that the move will cut into lenders’ profit and curb loan growth. The nation’s policy makers are grappling with the risk imposed by last year’s record $1.4 trillion credit boom that fueled the nation’s comeback from the global recession.
Agricultural Bank of China Ltd. is the only one among the nation’s five largest state-owned lenders that had loan-loss reserves exceeding 2.5 percent of its total advances, according to their semi-annual reports. Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, had reserves of 2.4 percent of its loans, while Bank of China Ltd. had a ratio of 2.26 percent.
The China Banking Regulatory Commission currently doesn’t oblige banks to keep a ratio of their total loans as reserves. Instead, it requires them to maintain reserves of at least 150 percent of non-performing loans. The nation’s lenders had an average coverage ratio of 186 percent by the end of June, according to the regulator.
ICBC fell 0.7 percent in Shanghai as of the 11:30 a.m. break. China Construction Bank Corp. slid 0.6 percent, and Agricultural Bank dropped 0.4 percent. The benchmark Shanghai Composite Index lost 0.4 percent.
--Luo Jun, Zhang Dingmin. Editors: Russell Ward, Chitra Somayaji
To contact Bloomberg News staff on this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net
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