CBIRC Launches New Draft Measures for Commercial Bank Asset Risk Categories

The China Banking and Insurance Regulatory Commission (CBIRC) has just issued the draft version of new measures on financial asset risk categorisation for the solicitation of public opinion.

According to CBIRC’s official website compared to existing guidelines the draft version of the “Commercial Bank Financial Asset Risk Categorisation Provisional Measures (商业银行金融资产风险分类暂行办法) “expands the risk categorisation asset scope, proposes new core definitions of risk categories, emphasises the use of debtors as the centre of categorisation concepts, clarifies the use of overdue days as an objective metric for risk categorisation, and engages in the refined reorganisation of asset risk categorisation requirements.”

The provisional measures also “make systemic requirements for commercial banks to strengthen risk categorisation management, as well as clarify requirements in relation to supervision and administration.”

CBIRC said that “credit risk is the most important form of risk faced by the Chinese banking sector,” and that “improving the risk categorisation system is the precondition for the effective prevention and control of credit risk.”

The People’s Bank of China (PBOC) first issued the “Loan Risk Category Guidance Principles”(贷款风险分类指导原则) in 1998, which outlined a five tier categorisation of risk, while in 2007 the China Banking Regulatory Commission (CBRC) issued the “Loan Risk Categorisation Guidelines” (贷款风险分类指引), which further clarified regulatory requirements in relation to these five tiers.

CBIRC said that China’s existing guidelines require updating following the release of new benchmarks by the Basel Committee on Banking Supervision in 2017.

“In recent years, the nature of the financial asset risk of Chinese commercial banks has undergone considerable change, and the practice of risk categorisation faces many new situations and problems, revealing existing inadequacies in the prevailing risk categorisation and administrative system.

“With reference to the latest international requirements as well as domestic regulatory practice, [CBIRC] has formulated the ‘Provisional Measures’ and will also issue and implement them as soon as possible in order to replace the ‘Guidelines,’ which will have major significance for driving commercial banks to strengthen credit risk management.”

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