Core view
Recently, the national Standing Committee proposed to "encourage large banks with high provision level to reduce the provision rate in an orderly manner". The previous national standing committee meeting that mentioned the provision rate can be traced back to April 2020 after the initial outbreak of the epidemic. The meeting called for "the regulatory requirements for the provision coverage rate of small and medium-sized banks to be reduced by 20 percentage points in stages". The provision rate is the provision coverage rate, which refers to the proportion of the amount prepared to prevent the occurrence of non-performing assets. According to CBRC Document No. 7 of 2018, the regulatory requirements for the provision coverage ratio of Chinese commercial banks are 120%-150%. By the end of 2021, the provision coverage of large commercial banks, joint-stock commercial banks and urban commercial banks were 239%, 206% and 189% respectively. Among them, large commercial banks and joint-stock commercial banks were higher than the overall level of commercial banks, and the provision reserves were relatively sufficient. According to the annual reports disclosed by the six major banks, the provision coverage of all banks increased by the end of 2021 and was higher than 150%. There are two ways for banks to reduce the provision rate: first, reduce the provision in the current period and release more profits, so that the credit extension capacity of large banks will be improved; Second, moderately relax the bad tolerance, then the credit support for the weak areas of the economy under the impact of the epidemic will be enhanced. On the whole, reducing the provision rate will enable banks to better serve the real economy and increase loan support for small and medium-sized enterprises and weak areas.
