The minimum loan loss provision for Chinese banks was lowered to a range between 1.2 and 1.5 times the amount of impaired loans, instead of the 1.5 times before. The new regulation is an adjustment of the previous “one size fits all” approach, which stated that a unified minimum provision coverage for impaired loans be imposed, despite each bank’s capital adequacy and the number of bad loans.
The measures, if realised, are quite significant for banks because they can impact their balance sheets. Cutting provisions would mean banks have more capital and can shore up their profitability.
The changes are part of Beijing's economic reforms intended to grow the economy alongside an increasing debt problem.
