Circular of the China Banking Regulatory Commission on Printing and Distributing the Guidelines for Risk-based Loan Classification

Circular of the China Banking Regulatory Commission on Printing and Distributing the Guidelines for Risk-based Loan Classification

Yin Jian Fa [2007] No.54

July 3, 2007

All banking regulatory bureaus, policy banks, state-owned commercial banks, joint-stock commercial banks and postal savings banks, and trust companies, finance companies and financial leasing companies directly under the supervision of the China Banking Regulatory Commission:

The Guidelines for Risk-based Loan Classification are hereby printed and distributed to you for your earnest compliance and implementation.

All banking regulatory bureaus shall forward this Circular to all financial institutions in the banking industry within their respective jurisdictions.

Guidelines for Risk-based Loan Classification
　
Article 1 For the purpose of helping commercial banks improve their credit management and scientifically assess the quality of their credit assets, these Guidelines are made in accordance with the Banking Supervision Law of the People's Republic of China, the Law of the People's Republic of China on Commercial Banks and other laws and administrative regulations.
　
Article 2 The term "loan classification" as used in these Guideline refers to the process of dividing loans into different classes according to the degree of risk degree by commercial banks. In essence, loan classification is conducted for the purpose of judging the possibility of a debtor timely paying the principal and interest of a loan in full.
　
Article 3 The following objectives shall be reached through loan classification:
1. Disclosing the actual value and risk degree of a loan, and truly, completely and dynamically reflecting the quality of the loan;
2. Timely discovering problems arising in the course of credit management, and strengthening loan management; and
3. Providing a basis for determining the adequacy of the loan loss provision.
　
Article 4 Loan classification shall be conducted in accordance to the following principles:
1. The principle of authenticity. The classification shall truly and objectively reflect the risk conditions of a loan;
2. The principle of timeliness. The classification results shall be adjusted timely and dynamically according to changes in the business management and other conditions of the borrower;
3. The principle of importance. Many factors have an effect on loan classification, so assessment and classification shall be conducted according to key factors determined in accordance with the core definition in Article 5 of these guidelines; and
4.
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