China to cut banks' loan provision ratio

SHANGHAI, Mar 7 (SMM) – China’s banking regulator plans to cut the amount of funds that banks are required to set aside to cover loan losses in a bid to provide more liquidity to the market.

In a circular released by China Banking Regulatory Commission (CBRC) last week, commercial banks are required to reduce the provision coverage ratio to 120-150% and loan provision ratio to 1.5-2.5% according to individual bank’s situation. The ratios stand at 150% and 2.5% currently.

The move is to better control financial risks and encourage banks to handle non-performing assets and improve asset quality, SMM analysts believe.

It also provides more liquidity to the market as banks will have more capital, according to AHCOF Futures analyst Zhong Yuan. He added that a reduction in provision coverage ratio and loan provision ratio suggested that China has achieved some progress in deleveraging.  

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