PBC-CBIRC Notice on Managing Real Estate Loan Concentration at Banks
CBIRC issued a notice on the reform and reorganization of rural banks while PBC and CBIRC issued a joint notice, along with questions and answers (Q&A), on the establishment of real estate loan concentration management system for banking institutions. The system is designed to advance the supply-side structural reform of the financial sector, enhance the internal controls of banking institutions, optimize the credit structure, and support financing in areas key to economic and social development. PBC and CBIRC will take measures such as additional capital requirements and adjustment of risk-weights of real estate assets for banking financial institutions that have not implemented the requirements of this notice. The notice on management of real estate loan concentration is being implemented from January 01, 2021.
Based on certain factors, including the asset size and institution type of banking entities, PBC and CBIRC formulated differentiated real estate loan concentration management requirements. The requirements are laid out with a comprehensive consideration of the bank type and the status quo and future space of outstanding real estate loan businesses. To reflect regional differences, appropriate flexibility is allowed in setting forth the real estate loan concentration management requirements for locally incorporated banking institutions. A transition period is arranged in the management system to ensure the smooth implementation of relevant policies and promote the steady and sound development of the real estate market and the financial market. The management requirements are set and applied at the corporate level (excluding overseas branches) and no separate requirements will be imposed on the branches of nationwide banks in different localities.
Banking institutions that exceed the caps specified in the management requirements should develop a scheme for business adjustments according to their actual conditions during the transition period. Banking institutions that satisfy the management requirements should carry out real estate loan-related businesses in a prudent manner. To extend vigorous support to the rental housing market, rental housing loans will not be included in the calculation of real estate loans as a percentage of total loans for the time being. At present, PBC is working with relevant authorities to study and formulate guidelines for rental housing finance and establish a statistical system for the purpose. When the guidelines and the system are put in place, rental housing loans that meet the definition provided by the authorities will not be included in loan concentration management statistics.
In recent years, due to various factors, a small number of rural banks have gradually become high-risk institutions, seriously affecting and restricting their sustainable development and financial service capabilities. The CBIRC notice on promoting reform and reorganization of rural banks proposes to support the main originating bank. The support is intended to supplement capital and assist in the disposal of non-performing loans, promote the reform and reorganization of rural banks in an appropriate and orderly manner, support the introduction of qualified strategic investors to assist in acquisition and capital increase, and strengthen the incentive and restraint of the main originating bank. For high-risk rural banks that are slow to deal with their issues, inadequate in advancement, and fail to complete the set goals, the territorial bureau shall, in conjunction with the consolidation bureau, take measures including, but not limited to, supervisory interviews, completion of disposal within a time limit, suspension of new business operations, restrictions on dividends, and orders to adjust senior management. This notice applies to institutions with supervisory rating grade 5 and grade 6 and those rural banks that are identified by the regulatory authorities as seriously risky.
Related Links (in Chinese and English)
- Press Release on Real Estate Loan Concentration
- Notice on Real Estate Loan Concentration
- Q&A on Real Estate Loan Concentration
- Press Release on Rural Bank Reform
- Notice on Rural Bank Reform
Effective Date: January 01, 2021
Keywords: Asia Pacific, China, Banking, Real Estate Loans, Credit Risk, NPLs, Regulatory Capital, PBC, CBIRC
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