CBIRC Consults on Measures for Classification of Asset Risks of Banks
CBIRC launched a consultation on the draft interim measures for the classification of financial asset risks of commercial banks in China. The comment period for this consultation ends on May 31, 2019. The Interim Measures extend the risk classification from loans to all financial assets that bear credit risk and propose non-credit assets with credit impairment as the core classification requirement, especially for the classification of asset management products.
Compared with the current "Guidelines" on asset risk classification, the "Interim Measures" expand the scope of asset risk classification, propose a new core definition of risk classification, emphasize the debtor-centered classification concept, clearly define the number of overdue days as an objective indicator of risk classification, and provide risk classification requirements for restructuring assets. Additionally, the "Interim Measures" put forward systematic requirements for commercial banks to strengthen risk classification management and clarify the relevant requirements for supervision and management.
As per the new measures, commercial banks are required to improve the risk classification governance structure, formulate risk classification management systems, clarify classification methods, processes and frequencies, develop and improve information systems, and strengthen monitoring and analysis, information disclosure, and document management. After the implementation of the Interim Measures, claims overdue for more than 90 days, even if the mortgage guarantee is sufficient, should be classified as bad. Considering the severity of the risks reflected by the non-retail debtor overdue for more than 90 days, the bank should categorize its debt as bad if the debtor’s debt overdue for more than 90 days in all banks’ debts has exceeded 5%. In addition, if loans are overdue for more than 270 days, they should be classified as at least suspicious. If overdue for more than 360 days, they should be classified as loss.
As per the CBIRC notification, credit risk is the most important risk faced by the banking industry in China and a sound risk classification system is the prerequisite for effective prevention and control of credit risk. These measures replace the existing guidelines on this topic while drawing on the latest international requirements and keeping in mind the domestic regulatory practices. These measures are also cognizant of the BCBS guidelines, from 2017, for careful handling of assets (Definitions of Adverse Exposure and Regulatory Tolerance); these BCBS guidelines clarified the criteria and classification requirements for non-performing assets and restructured assets to enhance the consistency of the global banking asset risk classification criteria.
Related Links (in Chinese)
Comment Due Date: May 31, 2019
Keywords: Asia Pacific, China, Banking, Credit Risk, NPLs, Interim Measures, Classification of Impairments, 90 Days Overdue, Asset Risk Classification, CBIRC
Previous Article
FASB Issues Minor Improvements to Financial Instruments StandardsRelated Articles
|
News
FCA Publishes Its Business Plan for the Coming YearFCA published its Business Plan, which sets out the main areas of focus and priorities for 2019/20.
May 17, 2019
WebPage
Regulatory News
|
|
News
IASB Issues Work Plan and Meeting Updates for May 2019IASB published an updated work plan, along with the update of its meeting in May 2019.
May 17, 2019
WebPage
Regulatory News
|
|
News
CFTC Proposes to Amend Derivatives Clearing Organization RegulationsCFTC proposed amendments to certain regulations applicable to registered derivatives clearing organizations (DCOs) under Part 30 of the CFTC regulations.
May 16, 2019
WebPage
Regulatory News
|
|
News
APRA Licenses Societe Generale As Foreign Deposit-Taking InstitutionAPRA granted Societe Generale a license to operate as a foreign authorized deposit-taking institution under the Banking Act of 1959.
May 16, 2019
WebPage
Regulatory News
|
|
News
EBA Provides Updates on Its Work on Basel III Impact Assessment in EUEBA is working to finalize the impact assessment on implementation of Basel III standards, in response to the EC call for advice, which was received on May 04, 2018.
May 16, 2019
WebPage
Regulatory News
|
|
News
ISDA Publishes Two Consultations on Benchmark FallbacksISDA published two consultations on benchmark fallbacks, the comment periods for which expire on July 12, 2019.
May 16, 2019
WebPage
Regulatory News
|
|
News
Sam Woods of PRA Speaks About Style of Regulation in UK After BrexitSam Woods, Deputy Governor for Prudential Regulation and Chief Executive Officer of PRA, spoke at the UBS Financial Institutions Conference in Lausanne.
May 16, 2019
WebPage
Regulatory News
|
|
News
FED Publishes Report Summarizing Regulatory and Supervisory ActivitiesFED published a report that summarizes banking conditions and the supervisory and regulatory activities of FED, in conjunction with semiannual testimony before Congress by the Vice Chairman for Supervision.
May 15, 2019
WebPage
Regulatory News
|
|
News
US Agencies Propose to Amend Regulatory Framework for Foreign BanksUS Agencies (OCC, FED, and FDIC) proposed a regulatory framework for foreign banks operating in the U.S. that would more closely match the rules for foreign banks with the risks they pose to the U.S. financial system.
May 15, 2019
WebPage
Regulatory News
|
|
News
ECB Consults on EONIA to €STR Legal Action PlanECB published a consultation, which was launched by the working group on euro risk-free rates, on recommendations to address the legal implications for new and legacy contracts referencing the euro overnight index average (EONIA), as a result of the proposed transition from EONIA to the euro short-term rate (€STR).
May 15, 2019
WebPage
Regulatory News
|
