Banks told to beef up appraisal of credit indicators
By Hu Xiaocen |
July 13, 2012, Friday
|
Print Edition
Print Edition
BANKS have been told to cancel the periodic performance indicators as the top banking regulator wants to discourage lenders from creating volatility in credit or deposits at the end of a specific period.
But banking sources said the regulator may find it difficult to implement the new measures.
The China Banking Regulatory Commission plans to issue new rules which aim to ensure banks make a reasonable performance evaluation to promote more orderly operations in credit or deposits.
Lenders tend to spur lending, or frontloading credit as it is known in the industry, near the end of the month or quarter to achieve their lending targets. If the banks fail to reach the targets in the period they may get a smaller lending quota the next time. They are also inclined to lure deposits close to the end of each period to meet regulatory requirement such as the loan-to-deposit ratio.
"The establishment and practice of the banking industry's performance appraisal failed to guide the financial institutions to operate prudently," CBRC wrote in a report to its local offices and the banks last week.
"Some prominent problems of the appraisal system have led to non-compliant operations and a disorderly competition."
The CBRC ordered its local offices to include the new rules in their "continuous monitoring scope" and to punish any violation severely.
The new rules also bar banks from making appraisals based on the amount of deposits received or lending made at a point of time.
Explaining the clause to Shanghai Daily yesterday, a bank source said: ''It means a lender's head office is not allowed to evaluate the performance of the outlet by its contribution of deposits or lending at each month end."
Under the rules the lenders' appraisal framework will cover five aspects - compliance, risk management, efficiency, development and transformation, and social responsibility.
Another bank source said as the performance indicator is an in-house issue the CBRC may not have the resources to monitor every detail.
The CBRC will also have its work cut out as there were 3,800 financial institutions by 2011 according to its annual report, not to mention the huge number of bank outlets.
But banking sources said the regulator may find it difficult to implement the new measures.
The China Banking Regulatory Commission plans to issue new rules which aim to ensure banks make a reasonable performance evaluation to promote more orderly operations in credit or deposits.
Lenders tend to spur lending, or frontloading credit as it is known in the industry, near the end of the month or quarter to achieve their lending targets. If the banks fail to reach the targets in the period they may get a smaller lending quota the next time. They are also inclined to lure deposits close to the end of each period to meet regulatory requirement such as the loan-to-deposit ratio.
"The establishment and practice of the banking industry's performance appraisal failed to guide the financial institutions to operate prudently," CBRC wrote in a report to its local offices and the banks last week.
"Some prominent problems of the appraisal system have led to non-compliant operations and a disorderly competition."
The CBRC ordered its local offices to include the new rules in their "continuous monitoring scope" and to punish any violation severely.
The new rules also bar banks from making appraisals based on the amount of deposits received or lending made at a point of time.
Explaining the clause to Shanghai Daily yesterday, a bank source said: ''It means a lender's head office is not allowed to evaluate the performance of the outlet by its contribution of deposits or lending at each month end."
Under the rules the lenders' appraisal framework will cover five aspects - compliance, risk management, efficiency, development and transformation, and social responsibility.
Another bank source said as the performance indicator is an in-house issue the CBRC may not have the resources to monitor every detail.
The CBRC will also have its work cut out as there were 3,800 financial institutions by 2011 according to its annual report, not to mention the huge number of bank outlets.
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