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China’s cabinet has discussed lowering the ratio of provisions banks must set aside for bad loans, potentially easing a drag on earnings after soured debts at lenders climbed to the highest in a decade.
The China Banking Regulatory Commission would be responsible for deciding the timing and magnitude of any reduction, said people with knowledge of the matter, who asked not to be identified as the deliberations are private. Some big banks have already used a ratio of around 120percent for their 2016 budgeting, two of the people said. The minimum ratio is currently set at 150percent.
The highest level of soured loans in a decade has hurt bank profits and cut their bad-loan coverage ratios close to the regulatory minimum. That’s prompted lenders including Industrial & Commercial Bank of China Ltd. to urge regulators to ease the requirement, which would give banks more scope to lend and bolster an economy that grew last year at the slowest pace in a quarter century.
“The high coverage ratio was set when the asset quality was still great, so that the banks could prepare themselves before things get out of hand,” said Chen Shujin, an analyst at DBS Vickers Hong Kong Ltd. “The 150 percent coverage ratio doesn’t really make sense now. A lower coverage ratio would help reflect more realistic asset quality for banks and help with their profit growth.”
Official data show nonperforming loans at Chinese commercial banks jumped 51 percent last year to a decade-high of 1.27 trillion yuan amid a stock market rout and the worst economic growth in a quarter century. While Moody’s Investors Service doesn’t expect a banking crisis in China in the next 12 to 18 months, it said in a Jan. 26 note that it does see higher loan delinquencies, more defaults on corporate debt and some losses in wealth-management products.
The National Development and Reform Commission plans to offer 400 billion yuan ($61 billion) this quarter so local authorities can finance infrastructure and help spur investment growth, said the people, who asked not to be identified because the plans aren’t public. More resources will be allotted in subsequent quarters this year, and the total will be determined by economic conditions, they said.
Oil prices fell, reversing gains earlier in the session, on signs that Iran will not join in a deal between Saudi Arabia, Russia and other producers to freeze oil output at January levels, keeping the current oversupply in place.
Brent crude was down 0.69 percent at $28.87 a barrel. It had climbed to $32.83 a barrel in early trade on Wednesday.
WTI crude fell 0.68 cents to $28.84 a barrel, after trading for much of the Asian session above $29 a barrel.
The oil price had gyrated Tuesday on supply-cut hopes ahead of meeting of top exporters in Doha, Qatar. Those hopes were dashed when Russia and Saudi Arabia agreed to freeze output at January's levels instead.Qatar and Venezuela have already agreed to participate but the deal was also contingent on other producers joining in.
It could become the first joint OPEC and non-OPEC deal in 15 years, as oil producers seek to boost persistently low oil prices. The energy commodity has declined 70 percent since the summer of 2014.
Iran, which was not present on Tuesday's meeting, planned to increase output by at least 500,000 barrels a day this year following the lifting of Western sanctions last month. Iran quickly said it wouldn't participate in any supply-freeze deal, but Reuters cited sources saying that that the country could be offered special terms on production levels if it took part in the deal.
“While an agreement could create the perception that more could be achieved, such as production cuts, we believe this would not be sufficient to set a floor on prices as they will only stabilize once inventories stop building,” according to Goldman Sachs.
Reference: Bloomberg, Reuters
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