China Implements Stricter Risk Management Requirements for Banks
The People’s Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC) have announced new regulations aimed at better assessing the credit risks of banks. Starting on July 1, financial institutions will be required to classify their financial assets into five categories, including bond investment, interbank lending, and off-balance-sheet assets, to provide a more accurate evaluation of their credit risks.
New Regulations to Enhance Risk Classification
The current rules for risk classification have become inadequate as the asset structure of Chinese banks has changed significantly in recent years. The new regulations aim to help prevent credit risks more effectively, while also helping banks evaluate credit risks more accurately.
Banks Urged to Scrutinize Underlying Assets
The authorities have encouraged banks to increase lending and bond purchases to support the recovery of the Chinese economy, which has been impacted by the COVID-19 pandemic and problems in the property sector. Banks are now urged to closely examine the underlying assets when classifying risks for asset management or securitization products.
Quarterly Risk Classification and Monitoring
Commercial banks are required to perform risk classification of all financial assets at least once every quarter, and must monitor, analyze, and take preventive measures in a timely manner to address any potential risks. Banks must also abide by the new regulations when assessing credit risks in debt restructurings.
Conclusion
The new regulations from the People’s Bank of China and the CBIRC aim to provide a more accurate evaluation of the credit risks of banks and to better prevent credit risks. By closely scrutinizing underlying assets and performing risk classification on a quarterly basis, these regulations are expected to help maintain the stability and reliability of the financial system in China.