Circular of China Banking Regulatory Commission on Printing and Distributing the Guidelines for the Classification of Credit Assets Risks of Rural Cooperative Financial Institutions
Circular of China Banking Regulatory Commission on Printing and Distributing the Guidelines for the Classification of Credit Assets Risks of Rural Cooperative Financial Institutions
[Lexis China Comments]
According to the Circular of the National Financial Regulatory Administration on Repealing and Invalidating Certain Normative Documents (Jin Gui [2025] No. 17), this document has been repealed.
Circular of China Banking Regulatory Commission on Printing and Distributing the Guidelines for the Classification of Credit Assets Risks of Rural Cooperative Financial Institutions
Yin Jian Fa [2006] No.23
March 22, 2006
To all the banking regulatory bureaus (everywhere except Tibet):
We hereby print and distribute the Guidelines for the Classification of the Credit Assets Risks of Rural Cooperative Financial Institutions to you. Please organize the rural cooperative institutions within your jurisdictions to earnestly learn and strictly implement them and supervise and urge the rural credit cooperative unions of all provinces (districts and cities), Beijing Rural Commercial Bank, Shanghai Rural Commercial Bank and Tianjin Rural Cooperative Bank to formulate detailed rules for implementation as soon as possible. If any problem is encountered during the execution, please report to the Banking Regulatory Commission in a timely manner.
Please quickly transfer this Circular to the rural credit cooperatives, rural cooperative banks and rural commercial banks within your jurisdictions.
Annex: The Guidelines for the Classification of Credit Assets Risks of Rural Cooperative Financial Institutions
In order to do a good job in the classification of credit assets risks of the rural cooperative financial institutions, these guidelines are formulated in accordance with the Guidelines for the Classification of Loan Risks (Yin Fa [2001] No.416) and the Circular of China Banking Regulatory Commission on Promoting and Improving the Classification Work of Loan Risks (Yin Jian Fa [2003] No 22).
I. Purpose of the classification
1. To promote the rural cooperative financial institutions to build up the prudent operation and risk-based management idea.
2. To reveal the actual value and level of risks of credit assets, and reflect their quality truthfully, completely, and dynamically .
3. To find out any problem in the credit management in time so as to enhance the operation and management level.
4. To provide evidence for sufficiently draw losses, and enhance risk resistance capability.
II. Application scope
1. The rural cooperative financial institutions as mentioned in these Guidelines include rural commercial banks, rural cooperative banks (hereinafter referred to as banks) and rural credit cooperatives.
2. The credit assets as mentioned in these Guidelines include all in-statement credit assets (including RMB or foreign currency loans, loans under the account of financing of import and export trade, bank card overdrafts, discounts, advance payments of credit, etc.) and all off-statement credit assets (including letter of credit, banker's acceptance bill, guarantee, loan commitment and so on).
III. Principles of classification
1. The principle of risk. The classification of risk shall be based on the internal risk of credit assets. The circumstance of being overdue shall be regarded only as an important reference factor. The internal risk refers to the potential, already happened but unrealized risk.
2. The principle of truthfulness. The rural cooperative financial institutions shall accurately classify all kinds of credit assets and reflect their risk value truthfully, mainly based on the financial status, operation results, cash flow and credit record of borrowers.
3. The principle of prudence. The rural cooperative financial institutions shall, in accordance with the requirements of the Guiding Principles for the Classification of Loan Risks and these Guidelines, rationally classify the types of risks through the qualitative and quantitative analysis and evaluation on many factors influencing the possibility of creditors' paying the debts. Credit assets falling between two neighboring classes shall be put under lower level class in principle.
4. The principle of flexibility. The credit assets shall be classified transaction by transaction as a general rule. If a same borrower has multiple loans, and the conditions for them are basically the same, those loans may be classified collectively on the premise that the general classification results won't be affected.
5. The principle of dynamic management. On the basis of carrying out classification of credit assets risk regularly, to timely and dynamically grasp the changes of relevant factors affecting the reclaim of credit assets and to re-define in time those of which the risk circumstances have changed a lot.
IV. Methods of classification
A rural cooperative financial institution shall acquire information on the finance, cash flow volume, guarantee, and non-financial aspect of a borrower through on-site or off-site consulting and analysis means. The evaluation conclusion on all factors affecting the borrower's ability to repay shall be the major grounds for determining the class of loan, while the first source of repayment shall be attached importance.
The financial status evaluation refers to where a rural cooperative financial institution, based on on-site investigation and understanding of the operation situation and capital strength of the borrower, confirm and compare relevant data in the financial statements of the borrower, pay special attention to study and analyze the long-term and short-term repayment ability,the profit earning ability and the operation ability of the borrower, and synthetically evaluate the borrower's financial status.
The cash flow volume analysis refers to where a rural cooperative financial institution, based on the information on cash and the equivalent of cash in the cash flow volume statements of the borrower, evaluate the ability, time and confirmation of the borrower to produce and use cash and the equivalent of cash, and judge the effect of changes of net cash flow volume produced by the borrower's operation activities and the collection of money and financing activities on the ability of repayment.
The guarantee analysis refers to where a rural cooperative financial institution analyze on the guarantee measures of the creditor's right (including pledge, mortgage, and hypothecation) provided by the borrower or a third party. The institution shall evaluate mainly from the aspects of legal validity, value adequacy, security during the period of continual existence of the guarantee, and the implementation of liquidation so as to judge the impact of the guarantee, when being the second repayment source, on the repayment ability of the borrower. As for the evaluation of the guaranties (the pledges), if they can be transacted on the market, the guaranties (the pledges) shall be priced according to the market price, if there is no market for transaction, they shall be priced according to the minimum price of the guaranties (the pledges) of the same kind.
Non-financial factors include the industry risk factor of the borrower (including cost structure, the growing-up stage of the industry, the economic cycle of the industry, profitability and reliability of the industry, replaceability of the products, the law and policies, the economy and technological environment, etc.), operation risk factor (including scope of borrowers, current stage of development, extent of diversification of products, operation strategy, product and market analysis, analysis on production and sale, etc.), management risk factor (including organization form of borrowers, abilities and so experience of the management level, the stability of the management level and the quality of employees, etc.),natural and social factor, repayment records (including repayment records in other banks), repayment inclination, legal responsibilities of the indebtedness repayment and the credit management of the rural cooperative financial institution.
V. The core definitions
A rural cooperative financial institution shall, based on the possibilities of safely fulfilling the contract and repaying in time and in full amount, divide the credit assets into such five categories as normal, attention, substandard, suspicious and loss, and the last three categories of loans are referred to as non-performing credit assets.
1. Normal: The borrower is capable of fulfilling the contract, there is no any sufficient reason showing that the principal and interests of the loan will not be repaid in time and in full amount.
2. Attention: Currently the borrower has the ability to repay the principals and interests, but there are some factors that may bring negative impact on repayment.
3. Substandard: The repayment ability of the borrower is obviously problematic.
......
According to the Circular of the National Financial Regulatory Administration on Repealing and Invalidating Certain Normative Documents (Jin Gui [2025] No. 17), this document has been repealed.
Circular of China Banking Regulatory Commission on Printing and Distributing the Guidelines for the Classification of Credit Assets Risks of Rural Cooperative Financial Institutions
Yin Jian Fa [2006] No.23
March 22, 2006
To all the banking regulatory bureaus (everywhere except Tibet):
We hereby print and distribute the Guidelines for the Classification of the Credit Assets Risks of Rural Cooperative Financial Institutions to you. Please organize the rural cooperative institutions within your jurisdictions to earnestly learn and strictly implement them and supervise and urge the rural credit cooperative unions of all provinces (districts and cities), Beijing Rural Commercial Bank, Shanghai Rural Commercial Bank and Tianjin Rural Cooperative Bank to formulate detailed rules for implementation as soon as possible. If any problem is encountered during the execution, please report to the Banking Regulatory Commission in a timely manner.
Please quickly transfer this Circular to the rural credit cooperatives, rural cooperative banks and rural commercial banks within your jurisdictions.
Annex: The Guidelines for the Classification of Credit Assets Risks of Rural Cooperative Financial Institutions
In order to do a good job in the classification of credit assets risks of the rural cooperative financial institutions, these guidelines are formulated in accordance with the Guidelines for the Classification of Loan Risks (Yin Fa [2001] No.416) and the Circular of China Banking Regulatory Commission on Promoting and Improving the Classification Work of Loan Risks (Yin Jian Fa [2003] No 22).
I. Purpose of the classification
1. To promote the rural cooperative financial institutions to build up the prudent operation and risk-based management idea.
2. To reveal the actual value and level of risks of credit assets, and reflect their quality truthfully, completely, and dynamically .
3. To find out any problem in the credit management in time so as to enhance the operation and management level.
4. To provide evidence for sufficiently draw losses, and enhance risk resistance capability.
II. Application scope
1. The rural cooperative financial institutions as mentioned in these Guidelines include rural commercial banks, rural cooperative banks (hereinafter referred to as banks) and rural credit cooperatives.
2. The credit assets as mentioned in these Guidelines include all in-statement credit assets (including RMB or foreign currency loans, loans under the account of financing of import and export trade, bank card overdrafts, discounts, advance payments of credit, etc.) and all off-statement credit assets (including letter of credit, banker's acceptance bill, guarantee, loan commitment and so on).
III. Principles of classification
1. The principle of risk. The classification of risk shall be based on the internal risk of credit assets. The circumstance of being overdue shall be regarded only as an important reference factor. The internal risk refers to the potential, already happened but unrealized risk.
2. The principle of truthfulness. The rural cooperative financial institutions shall accurately classify all kinds of credit assets and reflect their risk value truthfully, mainly based on the financial status, operation results, cash flow and credit record of borrowers.
3. The principle of prudence. The rural cooperative financial institutions shall, in accordance with the requirements of the Guiding Principles for the Classification of Loan Risks and these Guidelines, rationally classify the types of risks through the qualitative and quantitative analysis and evaluation on many factors influencing the possibility of creditors' paying the debts. Credit assets falling between two neighboring classes shall be put under lower level class in principle.
4. The principle of flexibility. The credit assets shall be classified transaction by transaction as a general rule. If a same borrower has multiple loans, and the conditions for them are basically the same, those loans may be classified collectively on the premise that the general classification results won't be affected.
5. The principle of dynamic management. On the basis of carrying out classification of credit assets risk regularly, to timely and dynamically grasp the changes of relevant factors affecting the reclaim of credit assets and to re-define in time those of which the risk circumstances have changed a lot.
IV. Methods of classification
A rural cooperative financial institution shall acquire information on the finance, cash flow volume, guarantee, and non-financial aspect of a borrower through on-site or off-site consulting and analysis means. The evaluation conclusion on all factors affecting the borrower's ability to repay shall be the major grounds for determining the class of loan, while the first source of repayment shall be attached importance.
The financial status evaluation refers to where a rural cooperative financial institution, based on on-site investigation and understanding of the operation situation and capital strength of the borrower, confirm and compare relevant data in the financial statements of the borrower, pay special attention to study and analyze the long-term and short-term repayment ability,the profit earning ability and the operation ability of the borrower, and synthetically evaluate the borrower's financial status.
The cash flow volume analysis refers to where a rural cooperative financial institution, based on the information on cash and the equivalent of cash in the cash flow volume statements of the borrower, evaluate the ability, time and confirmation of the borrower to produce and use cash and the equivalent of cash, and judge the effect of changes of net cash flow volume produced by the borrower's operation activities and the collection of money and financing activities on the ability of repayment.
The guarantee analysis refers to where a rural cooperative financial institution analyze on the guarantee measures of the creditor's right (including pledge, mortgage, and hypothecation) provided by the borrower or a third party. The institution shall evaluate mainly from the aspects of legal validity, value adequacy, security during the period of continual existence of the guarantee, and the implementation of liquidation so as to judge the impact of the guarantee, when being the second repayment source, on the repayment ability of the borrower. As for the evaluation of the guaranties (the pledges), if they can be transacted on the market, the guaranties (the pledges) shall be priced according to the market price, if there is no market for transaction, they shall be priced according to the minimum price of the guaranties (the pledges) of the same kind.
Non-financial factors include the industry risk factor of the borrower (including cost structure, the growing-up stage of the industry, the economic cycle of the industry, profitability and reliability of the industry, replaceability of the products, the law and policies, the economy and technological environment, etc.), operation risk factor (including scope of borrowers, current stage of development, extent of diversification of products, operation strategy, product and market analysis, analysis on production and sale, etc.), management risk factor (including organization form of borrowers, abilities and so experience of the management level, the stability of the management level and the quality of employees, etc.),natural and social factor, repayment records (including repayment records in other banks), repayment inclination, legal responsibilities of the indebtedness repayment and the credit management of the rural cooperative financial institution.
V. The core definitions
A rural cooperative financial institution shall, based on the possibilities of safely fulfilling the contract and repaying in time and in full amount, divide the credit assets into such five categories as normal, attention, substandard, suspicious and loss, and the last three categories of loans are referred to as non-performing credit assets.
1. Normal: The borrower is capable of fulfilling the contract, there is no any sufficient reason showing that the principal and interests of the loan will not be repaid in time and in full amount.
2. Attention: Currently the borrower has the ability to repay the principals and interests, but there are some factors that may bring negative impact on repayment.
3. Substandard: The repayment ability of the borrower is obviously problematic.
......