China’s banks are talking to regulators about lowering requirements for bad-loan provisions as reserves for a rising tide of soured credit eat into lenders’ earnings.
Industrial & Commercial Bank of China Ltd. said that lenders were discussing the current requirements with regulators, according to a transcript of comments to analysts in a conference call on Friday evening. No comment was immediately available from the China Banking Regulatory Commission on Monday.
Chinese banks are required to set aside provisions that amount to 150 percent of existing nonperforming loans or 2.5 percent of total credit, whichever is higher. Lowering the requirements could help lenders to revive earnings growth as the the industry grapples with intensifying competition and a slowing economy.
“This measure is overly conservative and it’d make sense to loosen it as the country’s economy is cooling,” said Edmond Law, a Hong Kong-based analyst with UOB-Kay Hian, who was on the call. A 1:1 ratio would be adequate, Law said.
ICBC’s loan-loss reserve ratio sank to 158 percent during the third quarter.