Article/Xu Quansheng, columnist of Sina Financial Opinion Leader Column (WeChat official account kopleader)
Both the bank provision coverage rate and the loan provision rate have been reduced this time, which actually indicates that the banks are seriously concerned about the abnormal loans hidden in the loans.
What is the purpose of the CBRC to reduce the provision at this time On March 6, the CBRC issued the Document No. 7 of 2018, in which the bank provision coverage rate was reduced from 150% to 120% - 150%, the loan provision regulatory requirement was reduced from 2.5% to 1.5% - 2.5%, and the regulatory standard for loan loss provision of commercial banks was adjusted differently. Many people think that this is a large risk exposure of off balance sheet business of banks, such as acceptance bill business. Once a default event occurs, the bank needs to advance funds first, and the original off balance sheet business will also be included in the statement, forming non-performing assets of the bank. After the off balance sheet assets are entered into the bank balance sheet, the corresponding assets need to be replenished by the bank, Most people analyze the intention of CBRC Document No. 7 from this perspective. However, the author believes that this is not only the point, but also the point that the CBRC document requires to determine the specific supervision of a single bank, which should consider the specific purpose of "accuracy of loan classification", "initiative to deal with non-performing loans" and "capital adequacy".
The first is the accuracy of loan classification. It is mainly to prevent banks from deliberately choosing to whitewash financial statements for their own interests. The current five level classification method of bank credit is based on dynamic monitoring, through continuous monitoring and analysis of the borrower's cash flow, financial status, changes in the value of collateral, and even the borrower's negative and positive attitudes, to judge the actual loss of loans. Because of dynamic reasons, the indicator value may be filled with artificial interest in loan classification. Based on this moral hazard judgment, the banking supervision department should highlight that the accuracy of classification will certainly change randomly, and the supervision method will keep pace with the times. After the outbreak of the subprime mortgage crisis, the United Kingdom reformed the organizational structure of financial supervision and established the "bimodal supervision" framework of the Financial Conduct Supervision Authority and the Prudential Supervision Authority. Financial conduct supervision focuses on the micro and tends to prevent. The basic meaning of financial conduct supervision is to make forward-looking analysis of risks and intervene accordingly instead of watching damage happen before supervision. Therefore, the accuracy of loan classification in China should also be monitored in a manner similar to this behavior. For example, the long-term non-performing ratio of Chengdu Branch of a bank exposed at the beginning of this year was zero. Later, through regulatory inspection, it was found that the bank was fabricating false uses, splitting credit, ultra vires approval and other methods, illegally handling credit, interbank, wealth management, letter of credit and other businesses, and granted credit of 77.5 billion yuan to 1493 shell enterprises in exchange for related enterprises' contribution to guarantee non-performing loans. In fact, this situation is also contrary to financial behavior without thinking about it. In the current economic environment, a bank's loan is actually zero non-performing, which also requires "brain drilling". Therefore, we can find a trace of bank cover up behavior through behavior supervision.
The second is the initiative to deal with non-performing loans. The bad debt rate of banks has risen significantly, but banks will not take the initiative to expose problems for the sake of reputation risk. Another meaning is the relationship between the bank and the local government. Some enterprises are supported by the local government, which is the face project and performance project of the local government. Even if the enterprise has already been heavily indebted and insolvent, the local government should protect it from collapse. Such enterprises require banks to deal with non-performing loans, which seems to be very difficult. If the banks seriously deal with it, they will offend the local government, which will make it difficult for banks to stand on the local level. Therefore, regarding the initiative of disposing non-performing loans, it may be that the banking supervision department put forward the initiative requirement in consideration of these factors. But this must be closely coordinated by the local government.
The third is capital adequacy. Capital adequacy ratio is to control the excessive expansion of bank asset scale, and it is an indispensable indicator to restrict bank credit risk, market risk and operational risk. This time, the banking supervision department will use the capital adequacy ratio to moderately reduce the loan loss reserve requirements for banks with high capital adequacy ratio. On the contrary, banks with substandard capital need more stringent loan loss reserve requirements. Maintaining capital adequacy can enable banks to maintain a reasonable asset structure, which is the minimum guarantee for the CBRC to reduce the systemic risk of banks.
To sum up the above three aspects, from the data information of the monitoring indicators released by the CBRC in the fourth quarter of 2017, the balance of non-performing loans of commercial banks was 1.71 trillion yuan, and the non-performing loan ratio was 1.74%, while the non-performing loan ratio in the third quarter of 2016 was 1.76%, and the non-performing loan ratio of banks decreased. Why did the CBRC reduce the provision ratio even when non-performing loans declined?
If you pay more attention to the data published on the CBRC website, you will find that the balance of the bank's special mention loans in the fourth quarter of 2017 was 3.41 trillion yuan, and the special mention loan rate was 3.49%. According to the regulations of commercial banks, the special mention loans will become non-performing if they are overdue for more than 90 days. Therefore, the author believes that the huge data of the special mention loans is the real reason why the banking supervision department is worried. It is also the real intention of reducing the provision ratio this time.
In fact, from accuracy to initiative and then to adequacy, they all play a role in the prevention of attention loans in advance. This example has been found in reality: for example, the loan of enterprise A has become a concern category, when the bank came to enterprise B to purchase part of the debt of enterprise A with a sum of money, at the same time, the bank issued a new loan to enterprise B, and enterprise B used this loan to repay the loan owed by enterprise A before, making the overdue loan become a normal loan again, This seemingly normal loan is actually an invisible non-performing loan. Due to the illegal operation of commercial banks driven by interests by unscrupulous means, the data of banks' measurement indicators become an irregular number game, and the results of the five level classification often deviate greatly from the actual situation, which is why the CBRC will first strive for accurate classification.
The existence of hidden non-performing assets increases the risk weight of loan assets, leading to an increase in the total amount of risk weighted assets, which will lead to a decline in capital adequacy ratio. However, the write off of non-performing assets needs to consume the bank's reserves. If the provision coverage is insufficient, the write off of capital will affect the capital adequacy ratio. Therefore, to maintain the capital adequacy of banks is also to prevent the advance layout of concerned loans from entering into non-performing loans.
It can be asserted that the bank's provision coverage rate and loan provision rate are both reduced this time, which actually indicates that banks are seriously concerned about abnormal loans hidden in loans. Many financial sectors have had some similar problems to varying degrees before. The purpose of the CBRC this time is to release those close to the normal value of the concerned loans, on the one hand, by increasing bank liquidity, ease the cash flow tension, and prevent systemic financial risks. On the other hand, banks are encouraged to accurately classify loans, expose non-performing loans, actively dispose of non-performing loans, and make capital replenishment through multiple channels. This progressive relationship is the real intention of the CBRC to release Document No. 7 at this moment.
(The author of this article introduces: a senior financial commentator who has worked in the front line of the financial industry for a long time.)
