The People's Bank of China issued the Measures for the Classification of Financial Assets Risk of Commercial Banks

In order to further promote commercial banks to accurately identify and evaluate credit risks and truly reflect the quality of assets, the China Banking and Insurance Regulatory Commission and the People's Bank of China have jointly formulated the Measures for the Classification of Financial Assets Risk of Commercial Banks (hereinafter referred to as the Measures), which is now officially released.
A sound risk classification system is the prerequisite for effective prevention and control of credit risk. In 1998, the People's Bank of China issued the Guiding Principles for the Classification of Loan Risk, putting forward the concept of five-level classification. In 2007, the former CBRC issued the Guidelines on the Classification of Loan Risk (hereinafter referred to as the Guidelines), which further clarified the requirements for five-level classification supervision. In recent years, the asset structure of China's commercial banks has undergone major changes, and the practice of risk classification faces many new situations and problems. The current risk classification supervision system has some weaknesses and deficiencies. In 2017, the Basel Committee issued the Guidelines on Prudential Treatment of Assets, clarifying the identification criteria and classification requirements for non-performing assets and restructured assets, aiming at enhancing the consistency of the classification criteria for asset risk in the global banking industry and the comparability of the results. The CBRC and the People's Bank of China, drawing on good international and domestic standards, and combining the current situation of China's banking industry and regulatory practice, formulated and issued the Measures for implementation, which is of great significance to promote commercial banks to strengthen credit risk management and improve their overall risk management capability.
There are six chapters and 48 articles in the Measures, which require commercial banks to follow the principles of authenticity, timeliness, prudence and independence to carry out risk classification for all financial assets on and off the balance sheet that bear credit risk. Compared with the current Guidelines, the Measures expand the asset scope of risk classification, propose a new definition of risk classification, emphasize the classification concept centered on the debtor's ability to perform, and further clarify the objective indicators and requirements of risk classification. At the same time, the Measures put forward systematic requirements for commercial banks to strengthen risk classification management, and clarified relevant measures for supervision and management.