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Experts: Lower provision rule not necessary

By Wang Xiaotian (China Daily)

14:48, February 14, 2012

(China Daily Photo)

BEIJING - Analysts said now is not the time for banking regulators to lower the provision-ratio requirements for commercial lenders since lending is still proceeding at a fast pace and banks are trying to expand credit.

Chinese banking regulators are considering loosening a rule requiring lenders to hold a provision equal to 2.5 percent of their outstanding loans, China Business News reported on Monday, citing anonymous sources.

The money held in the provision is meant to cover losses on non-performing loans.

An official at the China Banking Regulatory Commission said the commission is unlikely to lower the provision-ratio requirement because it remains the best means of curbing financial institutions' desire to lend.

"The adoption of such a rule is meant to regulate credit expansion among banks," said Zhao Xijun, a financial professor at Renmin University of China. He said there is enough lending to keep the economy shored up and he sees no need to change the requirement.

"The problem lies in the fact that capital hasn't been lent to the right industries," Zhao said. "So regulators plan to adopt different standards for various categories of lending while maintaining a general policy for all."

In May 2011, the regulatory commission announced rules that set stricter criteria for lenders' capital adequacy, provisions, leverage and liquidity conditions, and set the 2.5 percent provision ratio.

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