Circular of People's Bank of China on Printing and Distributing the Guideline of Loan Risk Classification
Circular of People's Bank of China on Printing and Distributing the Guideline of Loan Risk Classification
Circular of People's Bank of China on Printing and Distributing the Guideline of Loan Risk Classification
Yin Fa [2001] 416
December 19, 2001
Chapter I Objectives of Loan Classification
Article 1 In order to establish the modern banking system, improve the methods of loan classification, strengthen the management of bank credit and improve the quality of credit assets, the Guideline is hereby formulated.
Article 2 "Loan classification" referred to in the Guideline means the process by which loans can be divided into different grades according to the degree of risks. The objectives of loan classification are as follows:
1. to disclose the actual value and risk degree of loans, and truthfully, comprehensively and dynamically reflect the qualify of loans;
2. to find out the problems in the granting, management, monitoring and collection of loans and the management of non-performing loans, and strengthen the credit management;
3. to provide the proofs for determining whether the reserve against losses of loans is sufficient.
Chapter II Standards of Loan Classification
Article 3 The quality of bank loans may be evaluated by the risk-based classification method (hereinafter referred to as the loan risk classification method), namely loans are divided into the normal, concerned, substandard, doubtful and losing categories; the loans in the last three categories are called non-performing loans.
Article 4 The definitions of these five categories are as follows:
"Normal": a borrower can perform the contract and there is no sufficient reason to doubt the principal and interest of the loan can not be repaid in full and on time.
"Concerned": even though a borrower can repay the principal and interest of the loan now, there are some factors which may negatively affect the repayment thereof.
"Substandard": there are some obvious problems in the repayment ability of a borrower, which can not repay the principal and interest of the loan in full and on time just by using its normal operating revenues, and even though the guarantee is implemented, some losses will still be caused.
"Doubtful": a borrower can not pay the principal and interest of the loan in full, even though the guarantee is implemented, great losses will still be caused.
"Losing": after taking all the possible measures and necessary legal procedures, the principal and interest of the loan can not be recovered or just a small part thereof can be recovered.
Article 5 Using the loan risk classification method to classify the qualify of loans is to determine the possibility for a borrower to repay the principal and interest of the loan in full and on time, so the main factors needed to be considered including:
1.
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