BEIJING, Oct 18 (Reuters) - China’s banking regulator has told rural commercial banks to expedite the disposal of bad loans as part of Beijing’s intensifying efforts to fend off financial risks, two sources with knowledge of the matter told Reuters on Thursday.
Risks are more significant at rural lenders as they lack sufficient capability to diversify in terms of geography, industry or clients. Many are involved in unregulated shadow financing, allowing them to circumvent rules capping a lender’s credit exposure.
In a meeting at end-September, the regulator requested the banks to strictly follow loan classification rules to not hide bad loans, said one of the sources, both of whom requested anonymity as they are not authorised to speak to the media.
“This year the regulator has been very strict about bad loan classification, encouraging banks to increase efforts to resolve bad loans,” the source said.
“Rural commercial banks are particularly problematic and have drawn special attention from the markets,” he added.
The China Banking and Insurance Regulatory Commission (CBIRC) was not available for comment outside business hours.
Small banks in Chinese provinces affected by Beijing’s efforts to slash excess industrial capacity and reduce pollution are being hit by a spate of non-performing loans this year, Reuters reported in July citing credit ratings reports.
At least 13 lenders, including 10 rural commercial banks, have had their credit ratings cut or outlooks downgraded to negative since the start of 2017.
Some small lenders in provinces such as Henan and Guizhou have seen their capital adequacy ratios fall to near zero or even negative due to the increase in bad loans. (Reporting By China finance team, Writing by Shu Zhang; Editing by Simon Cameron-Moore)