Guiding principles for classification of loan risk

Guidelines on Risk-Based Loan Classification

 

The first chapter of loan classification target
Chapter I Objectives of Loan Classification

Article 1 in order to establish the modern banking system, improve the methods of loan classification, strengthen credit management, improve the quality of credit assets, the purpose of this guiding principle.

Article 1 These Guidelines are formulated in order to facilitate the establishment of a modern banking system, improve the methodologies of loan classification, strengthen the credit management of banks and enhance the quality of credit assets

Loan classification second this guideline refers, refers to the degree of risk will be divided into different grades of loan. Through the classification of loans should be to achieve the following objectives:

Article 2 For purposes of these Guidelines, "loan classification" refers to a process of categorizing loans according to their risk profileThe following objectives shall be achieved through loan classification

(a) the real value and risk of loans, real, comprehensive, dynamic reflect the quality of loans;
(1) To identify the real value and risk profile of loans and reflect the quality of loans in a truthful, comprehensive and dynamic manner

(two) loans are found, management, monitoring, collection and bad loans, strengthen credit management;
(2) To identify problems in the process of the granting, management, monitoring and collection of loans as well as the management of non-performing loans, and strengthen credit management;

(three) for judging the adequacy of loan loss provision provide basis.
(3) To provide basis for assessing the adequacy of loan loss provisions

The second chapter loan classification standard
Chapter II Criteria for Loan Classification

Third evaluation of the quality of bank loans, the risk based approach (referred to as the loan risk classification of loans), which were divided into normal, attention, substandard, doubtful and loss of five; three is called the bad loans.
Article 3 The risk-based approach is adopted to categorize the loan quality of banks (risk-based loan classification), whereby loans are classified into five categories, i.e., pass, special mention, substandard, doubtful and loss, with the last three categories collectively referred to as non-performing loans

Article fourth definition five loans were:
Article 4 Definitions of the five categories

Normal: borrowers are able to perform the contract, there is no sufficient reason to doubt the principal and interest of the loan cannot be repaid in full and on time.
Pass: borrowers are able to perform the contract, and there is no sufficient reason to doubt the repayment of the principal and interest of loans in full and on time

Attention: Although the borrower now have the ability to repay the loan principal and interest, but some may have an adverse effect on the repayment of factors.
Special mention: though borrowers are currently able to repay the principal and interest of loans, there are factors that may have an adverse effect on the repayment of loans

Secondary: the borrower's repayment ability obvious problems, completely rely on their normal business income is unable to repay the principal and interest of loans in full, even if the collateral, may also cause some loss of.
Substandard: borrowers' repayment ability is apparently in question, and they are unable to repay the principle and interest of loans in full solely with their normal operating income; certain losses might incur even if collaterals are realized

Suspect: the borrower cannot repay the loan in full, even if the collateral, certainly will cause a greater loss.
Doubtful: borrowers are unable to repay the principal and interest of loans in full and significant losses will inevitably incur even when collaterals are realized

Loss: after taking all possible measures and all the necessary legal procedures, still unable to recover the principal and interest, or only a small portion can be recovered.
Loss: after all possible measures and all necessary legal procedures have been taken, the principal and interest of loans still cannot be collected or only a small portion can be collected

Classification of loan quality is fifth using the loan risk classification, in fact is to determine the possibility of borrowers repay the principal and interest of loans in full and on time, including the main factor of the consideration:
Article 5 The risk-based loan classification method is actually to evaluate the probability of borrowers to repay the principal and interest of loans in full and on timeThe principal factors in classifying loans are

(a) the borrower's repayment ability;
(1) Repayment ability of borrowers;

(two) the borrower's repayment records;
(2) Repayment records of borrowers;

(three) the borrower's repayment willingness;
(3) Repayment willingness of borrowers;

(four) loans;
(4) Collaterals of loans;

(five) the legal responsibility for the repayment of loans;
(5) Legal liabilities of repayment; and

(six) the credit management of banks.
(6) Credit management of banks

The borrower's repayment ability is a comprehensive concept, including borrower cash flow, financial, non-financial factors affecting the repayment ability etc..
The borrowers' repayment ability covers a number of factors including borrowers' cash flow, financial conditions and relevant non-financial factors

Article sixth the classification of loans, to assess the borrower's repayment ability as the core, the borrowers' normal operating income as the main source of repayment of loans, loan guarantees as a secondary source of repayment.
Article 6 The classification of loans shall focus on the assessment of the borrowers' repayment ability and 'the borrowers normal operating income shall be treated as the primary source of repayment, with the collaterals as a secondary source of repayment

Article seventh the need to restructure the loan shall be classified as sub categories; restructured loans (hereinafter referred to as the restructured loans) if still fails, or the borrowers are still unable to repay loans, should be at least to the suspicious kind.
Article 7 Loans subject to restructuring shall be classified as substandard or a lower category and restructured loans shall be classified as doubtful or a lower category if they remain overdue or the borrowers are still unable to repay loans

The restructured loans refers to the bank due to deterioration in the borrower's financial status, or unable to repay the loan repayment and make adjustments to the loan contract terms.
Restructured loans refer to loans with respect to which the contractual terms of repayment have been adjusted due to the deterioration of the borrowers' financial conditions or their inability to repay loans

If the restructured loans have other serious problems, can refer to this guiding principle fourth and fifth for further adjustment.
Restructured loans may be further adjusted in accordance with Article 4 and Article 5 hereof if there are other more serious factors

The eighth on the merger, division, restructuring and other forms of malicious evasion of bank debt loans, at least into the category of concerned. And should be in accordance with the law to recover, classified according to the actual ability to repay.
Article 8 Loans extended to borrowers that maliciously evade repayment by means of merger, acquisition, restructuring or split-up of enterprises shall be classified as special mention or a lower category, and shall be reclassified according to the borrowers' actual repayment ability after legal procedures have been taken

The ninth category, the situation of overdue loans should be considered as a important factor. Overdue (including the extension after) over a certain period, the interest receivable not included in current profit and loss loans, at least to the secondary class.
Article 9 The overdue status of loans shall be considered an important factor for loan classification. Loans that are overdue (including grace period) beyond a certain period and whose interest receivable is no longer recognized as income for the current period shall be classified as substandard or a lower category

The loan of tenth in violation of relevant state laws and regulations issued should be at least to concern category.
Article 10 Loans extended in violation of relevant PRC laws and regulations shall be classified as special mention or a lower category

The third chapter of the basic requirements for loan classification
Chapter III Basic Requirements for Loan Classification

Classification of eleventh of the loan is an important part of the credit management of commercial banks. In the process of loan classification, commercial banks must do at least the following six aspects:
Article 11 Loan classification is an important part of commercial banks' credit managementIn the process of loan classification, commercial banks shall meet at least the following six requirements

(a) to establish a sound internal control system, improve the credit regulations, systems and methods;
(1) To establish a sound internal control system and improve the credit ruels, policies and procedures;

(two) establish the effective credit organization management system;
(2) To establish an effective credit management system;

(three) to implement separation of loans;
(3) To implement the separation between loan approval and loan granting;

(four) to improve the credit records management system, to ensure continuity and integrity of the loan records;
(4) To improve the credit files management system to ensure the continuity and completeness of loan files;

(five) to improve the management information system, to ensure that important information management can timely obtain the loan conditions;
(5) To improve the management information system to ensure that the management will be kept informed of the important information related to loans; and

(six) to urge the borrower to provide true and accurate financial information.
(6) To make borrowers provide true and accurate financial information

Article twelfth the risk-based loan classification is the minimum requirement for loan classification, based on commercial bank loan quality is also determined.
Article 12 The risk-based loan classification is the minimum requirement for loan classification, and is the basis for assessing the credit quality of commercial banks

A commercial bank may direct the loan risk classification standard of this guiding principle second chapter, also according to the guideline, starting from their own credit risk prevention and management needs, formulate the corresponding loan classification system.
Commercial banks may either adopt the loan classification criteria specified in Chapter II hereof or formulate their own loan classification system according to these Guidelines and in light of their own risk prevention and credit management needs

The loan risk classification of loan classification system formulated by a commercial bank should adopt with the people's Bank of Chinese has definite corresponding and transformational relations, and submitted to the people's Bank of Chinese record.
The loan classification system formulated by commercial banks shall be compatible with and convertible to the loan classification method adopted by the PBOC and shall be submitted to the PBOC for record

Article thirteenth for the classification of loans, not with the customer's credit rating to replace the classification of loans, credit rating only as a reference factor for loan classification.
Article 13 Borrowers credit rating may not 'be used to replace loan classification and credit rating may only serve as a reference for loan classification

Article fourteenth if the factors affecting the borrower's financial status or loan repayment changes, timely adjustment of loan classification.
Article 14 If any factor affecting the borrowers' financial conditions or loan repayment ability undergoes any significant change, the relevant loan classification shall be adjusted in a timely manner

The commercial bank shall at least once every six months on loan classification. The non-performing loans shall be strictly controlled, analyzed and classified more frequently, take corresponding measures according to the loan risk status.
Commercial banks shall classify all their loans at least semi-annuallyWith respect to non-performing loans, stricter monitoring and more frequent review and classification are required, and appropriate measures shall be taken based on the risk profile of loans

Article fifteenth the risk based loan classification method, a commercial bank shall strengthen the management on the loan term. The overdue loans shall be measured and monitored according to the relevant provisions of the people's Bank of China.
Article 15 Commercial banks shall strengthen the maturity management of loans while adopting the risk-based loan classificationOverdue loans shall be measured and monitored according to the rules and regulations PBOC

Sixteenth commercial banks should develop policies and procedures for mortgage, pledge, management and evaluation of the clear. For collateral assessment, in the market, according to market price setting; in the absence of market circumstances, should refer to the market price of similar collateral value.
Article 16 Commercial banks shall formulate explicit policies and procedures for the management and evaluation of collateralsCollaterals shall be evaluated based on their market prices, or, if no market price is available, evaluation shall be made with reference to the market prices of similar collaterals

Article seventeenth a commercial bank shall make explicit guaranteed loan management policy, the classification of such loans should give full consideration to ensure the validity of the contract, and ensure the performance guarantee responsibilities.
Article 17 Commercial banks shall formulate explicit policies on the management of guaranteed loanClassification of guaranteed loans shall take into full consideration the validity of the guarantee contracts and the guarantors' ability to honor their obligations

Eighteenth commercial banks to guarantee the loan classification credit officers and review personnel with the necessary credit analysis knowledge, familiar with the basic principles of loan classification. Through training and the measures necessary to ensure the quality of loan classification.
Article 18 Commercial banks shall ensure that the credit officers and review personnel in charge of loan classification have necessary knowledge in credit analysis and are familiar with the fundamentals of loan classificationTrainings and necessary actions are required to ensure the effectiveness of loan classification

Organization and implementation of the fourth chapter of loan classification
Chapter IV Implementation of Loan Classification

Nineteenth commercial banks to classify loans, should follow the principles of internal control, to guarantee the loan classification is independent, coherent and reliable.
Article 19 When making loan classification, commercial banks shall comply with the internal control policy to ensure the independence, continuity and reliability of loan classification

The internal report system for loan classification twentieth commercial banks report made clear, to ensure the management can timely informed of the loan quality and variety.
Article 20 The internal reporting system of commercial banks shall clearly specify the reporting procedures for loan classification to ensure that the management will be kept informed of the loan quality and changes thereto

Twenty-first credit officers should be mastered and be familiar with the situations of borrowers and loans, have the responsibility to the real situation of borrowers and loans written report to the Department responsible for classification reexamination.
Article 21 Credit officers shall have a good knowledge and understanding of the borrowers and the loans, and shall be responsible for faithfully reporting the information of the borrowers and the loans to the loan classification review department in writing

The internal audit department twenty-second a commercial bank shall regularly inspect and evaluate the implementation of loan classification policies, procedures, and will examine the results to the superior or the board of directors to make a written report.
Article 22 The Internal Audit Department of commercial banks shall examine and evaluate the implementation of loan classification policies and procedures on a periodic basis and shall report their findings in writing to the higher level bank or the board of directors

Supervision and management of the fifth chapter of loan classification
Chapter V Supervision and Administration of Loan Classification

Article twenty-third the people's Bank of China to monitor the quality of the loans of commercial banks through on-site inspection and off-site monitoring in two ways.
Article 23 The PBOC shall review the loan quality of commercial banks by way of on-site examination and off-site monitoring

Article twenty-fourth the people's Bank of China every year in principle to conduct a spot check of the quality of commercial bank loans, including special inspection and regular inspection; on loan quality has a major problem of the commercial banks, will be subject to more stringent supervision.
Article 24 The PBOC shall in principle conduct an on-site examination of the loan quality of commercial banks on an annual basis, including special examination and regular examination. Commercial banks with seriousloan quality problems will be subject to more stringent supervision

Article twenty-fifth the people's Bank of Chinese in checking the quality of commercial bank loans, not only independently classify the quality of loans, but also evaluate the credit policy, credit management level, loan classification method, the classification procedure and results.
Article 25 When reviewing the loan quality of commercial banks, the PBOC shall not only classify the quality of loans independently, but shall also evaluate the credit policy, credit management level, and the methodology, procedures and results of loan classification of commercial banks

Twenty-sixth a commercial bank shall report the data of loan classification according to the people's Bank of Chinese requirements.
Article 26 Commercial banks shall report the statistics for loan classification according to the requirements of the PBOC

Twenty-seventh commercial bank loan losses and write off of bad loans shall be disclosed according to the relevant regulations.
Article 27 Loan losses and the write-offs of loan losses of commercial banks shall be disclosed according to relevant regulations

The sixth chapter supplementary provisions
Chapter VI Supplementary Provisions

Article twenty-eighth the guiding principle of "loans" refers to the "loan general" provisions in the types of loans.
Article 28 For purposes of these Guidelines, "loans" refer to all types of loans specified in theGeneral Rules on Lending.

Twenty-ninth other types of assets, including direct credit balance sheet items, instead of the project, it should be based on the net value of assets, the capacity of the debtor, the debtor's credit rating and guarantee situations into normal, attention, secondary, suspicious, loss of five class, after which the three is called the bad assets.
Article 29 Other types of assets, including off-balance sheet items such as direct credit substitutes, shall also be categorized as pass, special mention, substandard, doubtful and loss according to the net value of assets, repayment ability of borrowers, credit rating of borrowers and collaterals involved, with the last three categories collectively referred to as non-performing assets

Classification, to the safety degree of the assets value as the core, specific reference to the loan risk classification standards and requirements.
The classification of loans shall focus on the safety of asset value, and reference may be made to the criteria and requirements of the risk-based loan classification

Thirtieth commercial banks should be in accordance with the principle of prudent accounting, and accounting guidelines in accordance with the relevant provisions of the Ministry of Finance and the people's Bank of the loan loss reserve, extraction of loan loss reserves, loss of loan write off.
Article 30 Commercial banks shall make loan loss provisions and write off loan losses according to the prudent accounting principle, the relevant rules of the Ministry of Finance as well as the guidelines of the PBOC on loan loss provisions

This the thirty-first guiding principles applicable to all types of commercial banks.
Article 31 These Guidelines shall be applicable to all types of commercial banks

Policy banks and other financial institutions engaged in credit business of the guiding principle of establishing their respective classification systems, but should not be lower than the guiding principle of the proposed standards and requirements.
Policy banks and other financial institutions engaged in credit business may establish their own loan classification systems with reference to these Guidelines, but the criteria and requirements shall in no event be lower than those specified in these Guidelines

Article thirty-second the guiding principles by the people's Bank of Chinese is responsible for the interpretation of.
Article 32 The PBOC shall be responsible for the interpretation of these Guidelines

Article thirty-third the guiding principles on the date of promulgation.

Article 33 These Guidelines shall come into force as of the date of promulgation

 

(The Chinese published law, the help translation independently, only to learn the reference purposes.)