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Banks must rely less on external ratings
By Maggie Zhang |
February 18, 2011, Friday
|
Print Edition
Print Edition
CHINA'S top banking regulator has ordered lenders to reduce their reliance on external rating firms and to build up their internal risk capabilities.
The external rating results shouldn't be relied on in the banks' decision whether or not to approve loans, the China Banking Regulatory Commission said in a notice obtained by Shanghai Daily yesterday.
Banks must set up their own credit rating system and use the external ones as references, not as a benchmark. Banks are required to refer to at least two external rating firms when they want to introduce a major investment product if the bank has no internal risk rating system. Banks must quote the lower rating which indicates higher default possibilities.
Banks must use their own rating system in making a major investment, the notice said.
They have also to evaluate the rating firms they turn to every two years to make sure that such firms are independent and capable. They have to enhance their abilities to focus more on internal risk control rather than rely on other agencies, analysts said.
A tighter control on issuing credit is already planned. Banks are asked to exercise prudence in offering loans in line with the government's shift to a prudent monetary policy from relatively loose this year.
Fitch Ratings said the outlook for Asia-Pacific banks is stable, but it is cautious on China's banking industry, quoting "moderating profitability and relentless growth which are pressuring capital and weakening their credit profiles."
Banks in China extended 1.04 trillion yuan (US$158 billion) of new yuan loans in January as lenders front-loaded loans on fears of further tightening measures.
The external rating results shouldn't be relied on in the banks' decision whether or not to approve loans, the China Banking Regulatory Commission said in a notice obtained by Shanghai Daily yesterday.
Banks must set up their own credit rating system and use the external ones as references, not as a benchmark. Banks are required to refer to at least two external rating firms when they want to introduce a major investment product if the bank has no internal risk rating system. Banks must quote the lower rating which indicates higher default possibilities.
Banks must use their own rating system in making a major investment, the notice said.
They have also to evaluate the rating firms they turn to every two years to make sure that such firms are independent and capable. They have to enhance their abilities to focus more on internal risk control rather than rely on other agencies, analysts said.
A tighter control on issuing credit is already planned. Banks are asked to exercise prudence in offering loans in line with the government's shift to a prudent monetary policy from relatively loose this year.
Fitch Ratings said the outlook for Asia-Pacific banks is stable, but it is cautious on China's banking industry, quoting "moderating profitability and relentless growth which are pressuring capital and weakening their credit profiles."
Banks in China extended 1.04 trillion yuan (US$158 billion) of new yuan loans in January as lenders front-loaded loans on fears of further tightening measures.
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