The Chinese banking regulator has ordered the country’s rural commercial banks to accelerate their handling of non-performing loans after a major tightening of recognition standards, according to sources speaking to Reuters.
The sources said that the China Banking and Insurance Regulatory Commission (CBIRC) held a meeting at the end of September where it told banks to refrain from concealing their NPL’s, and strictly abide by new classification rules.
Earlier this year Beijing changed the rules for categorisation of NPL’s to bring them in line with international practice.
While standard international practice is for any loans more than 90 days overdue to be categorised as impaired, China launched the category of “overdue but not impaired” in 2011 to enable them to dodge categorisation as non-performing assets.
Beijing cancelled the special designation earlier this year, in move that some analysts expect to boost the NPL levels of Chinese banks by as much as 14% in 2018.
UBS analyst Jason Bedford previously said that joint-stock banks, municipal commercial banks and rural commercial banks would bear 95% of the impact, with rural banks expected to post a 33% NPL increase.
“This year the regulator has been very strict about bad loan classification, encouraging banks to increase efforts to resolve bad loans,” said a source to Reuters.
“Rural commercial banks are particularly problematic and have drawn special attention from the markets.”
At least 10 rural commercial banks have seen their credit ratings reduced or their outlooks dialled down to negative since the start of 2017.