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China Strengthens Regulations on Bank Asset Risk Classification

China has introduced new risk management requirements for banks, aimed at improving the assessment of lenders' credit risks.

From July 1, banks must categorize all of their financial assets, including bond investments, interbank lending, and off-balance-sheet assets, into five categories ranging from "normal" to "loss." This new classification system is being introduced to help commercial banks more accurately evaluate credit risks and reflect the true quality of their financial assets.

The People's Bank of China and the China Banking and Insurance Regulatory Commission (CBIRC) have stated that the current risk management rules are insufficient due to changes in the asset structure of China's commercial banks. The new rules will help prevent credit risks more effectively and are designed to be applied to banks' new business. Banks have until the end of 2025 to reclassify existing financial assets. The rules also require banks to scrutinize underlying assets when classifying risks for asset management or securitization products, and to strictly abide by the rules when assessing credit risks in debt restructurings. Banks must perform risk classification of all financial assets at least once a quarter and must monitor, analyze, and provide early warning of risks, taking preventive measures in a timely manner.

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