"The single target of reserve coverage is not accurate enough. Besides reserve coverage, regulatory indicators also include loan reserve ratio. If banks with low bad rate meet the standard of loan reserve ratio, reserve coverage rate of 2000% is possible, not to mention 2 times," Liu Chengran, an expert on regulatory statements, told Reuters. "In this case, it must be untenable to say that banks hide profits."
According to the definition, loan reserve ratio refers to the ratio between the balance of loan loss reserve and loan contract, which is one of the important regulatory indicators reflecting the level of commercial bank reserve; reserve coverage ratio refers to the ratio of loan loss reserve to non-performing loans, which mainly reflects the ability of commercial banks to compensate for loan losses and the loan wind. Risk prevention ability.
In February last year, the regulatory authorities issued the Circular on the Regulation Requirements for Adjusting Commercial Bank Loan Loss Reserve, which made it clear that the regulatory requirements for reserve coverage should be adjusted from 150% to 120% - 150%, and the regulatory requirements for loan reserve should be adjusted from 2.5% to 1.5% - 2.5%.
He also said that if the Ministry of Finance's request for comments is finally implemented, it can really promote banks to truly reflect non-performing loans and achieve the goal of stabilizing or reducing the provision coverage by increasing the denominator of the provision coverage.
"Although in recent years strict regulation has promoted banks to react badly, including classifying loans over 90 days overdue into bad categories, if we continue to reduce the overdue time, there will be adverse exposures." Liu Chengqi said.
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