People's Bank of China, Bank Loan Loss Provisioning Guidelines

Issued: April 25 2002
Effective: January 1 2002
Applicability: The Guidelines apply to banking institutions established in the PRC with the approval of the People's Bank of China, including wholly Chinese-owned commercial banks, Sino-foreign equity joint venture banks, wholly foreign-owned banks and foreign bank branches (Article 14).

Main contents: The Guidelines require banks to make quarterly general provisions, class-specific provisions and special provisions for loan loss (Article 2). General provisions shall cover assets for which the bank undertakes risks and losses, such as loans, overdraft, discount and LC advances (Article 3). Class-specific provisions shall be made with reference to the Classification of Loan Risks Guiding Principles. The percentage of the provisions shall be 2% for loans classified as "attention", 25% for loans classified as "substandard", 50% for "doubtful" loans and 100% for "loss-making" loans (Article 5). Special provisions shall be made at the discretion of the banks with reference to the special risks associated with certain loans (Article 6). Provisions for loan loss shall be made uniformly by bank headquarters. In the case of a foreign bank branch, the general provisions may be made by the headquarters while the class-specific provisions are made by the branch itself (Article 7). Banks without adequate provisions for loan loss are forbidden to make after-tax profit distribution (Article 9). Banks shall give regular reports on their loan loss provisioning to the People's Bank of China as required (Article 11).
Related legislation: People's Bank of China, Classification of Loan Risks Guiding Principles (Trial Implementation), Apr 20 1998, CLP 1998 No.5 p6

clp reference:3600/02.04.25promulgated:2002-04-25effective:2002-01-01