China's central bank has set stricter requirements on bad loan provisions made by banks in a move to integrate with international practices.
Some bankers and analysts were doubtful if local banks had sufficient resources to carry out the regulations.
But the rule "will play a role in deterring bank officials from making more irresponsible loans, or they'll have to set more profits aside," said Yuan Gangming, senior researcher with the Chinese Academy of Social Sciences.
In a circular on Thursday, the central bank announced more stringent requirements for annual provisioning - a basic 1 percent of each bank's outstanding loans from the previous year and special provisions between 2 to 100 percent of outstanding loans.
China's four biggest State-owned commercial banks (Big Four) previously made provisions of just 1 percent of their "risk assets", which include all loans and other "risky" assets.
With the new requirements, banks will have to set aside "many times" more of their current provisions, which were far beyond their reach, bankers said.
"We welcome it as it's a necessary policy in integrating with international practices now that we are in the World Trade Organization," said a senior official with the China Construction Bank (CCB), one of the Big Four.
(China Daily April 27, 2002)
