Chinese govt orders banks to hike loss reserves

19 April 2012

Chinese banks are set to increase their loan reserve provisions in order to tighten up the country's financial industry, it has emerged.

Under the terms of a new initiative unveiled by the Asian superpower's Ministry of Finance today (19 April), lenders will be required to keep some 1.5 per cent of their gross loans back to guard against potential losses from 1 July this year.

This represents a hike on the existing level of one per cent and forms part of the administration's plan to cover possible rises in loan impairments as the country's economic growth continues to decelerate.

These "dynamic provision" regulations will apply to all kinds of financial organisations - including policy and commercial banks, credit co-operatives and asset management firms - and firms are to be given a period of five years to adapt to these changes.

Zong Liang, deputy general manager of the strategic development department of the Bank of China, observed: "The new rules will definitely reduce banks' profits."

By Tony Aynsley

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