SHANGHAI Jan 22 China has issued revised rules
to make it easier for banks to write off small loans, in the
latest effort to help lenders deal with an expected rise in bad
loans as the economy slows.
The rules, issued by the Ministry of Finance and published
on the website of the Jiangsu provincial finance bureau on
Tuesday, say the aim is to "strengthen financial enterprises'
risk prevention and control ability."
Bankers and analysts have warned that non-performing loans
in China's banking system are likely to rise this year as a
slowing economy, rising interest rates and policymakers' focus
on reducing new credit growth is likely to pressure weaker
The revised rules grant financial institutions freedom to
write off loans to a borrower of up to 10 million yuan ($1.65
million) without permission from the regulator, if the loans are
to a small- and medium-sized enterprise or related to
agriculture, and if the lender has tried for at least one year
to recover the funds.
Previously, the upper limit for such write-downs was 5
The revisions also allow financial institutions to write off
personal business loans to a single borrower of up to 5 million
yuan if the institution has sought repayment for at least one
The finance ministry also said that if a borrower has
entered bankruptcy, financial institutions can write off loans
after two years, if they have not received repayment. The
previous limit was three years.
Policymakers want to encourage banks to be pro-active in
writing down non-performing loans as a means to clean up their
balance sheets and improve the accuracy of their financial
Official data shows the non-performing loan ratio in China's
banking system stood at 0.97 percent at end-September, but most
analysts believe the true ratio is higher.
Banks can use various tactics to avoid recognising bad
loans, including extending the maturity of loans or offering new
loans to repay old ones.
For a graphic on analyst estimates of China's true
non-performing loan ratio, click on: link.reuters.com/zuk92v
($1 = 6.0505 Chinese yuan)
(Reporting by Gabriel Wildau and Lu Jianxin; Editing by