Bad debt disposal seen improving

China's latest move to lower the regulatory requirement on the ratio of allowance for loan impairment losses to nonperforming loans will encourage commercial banks to classify bad loans more accurately and to step up the disposal of distressed debt, researchers said.

The requirement on the ratio will be lowered from 150 percent to a range of 120 to 150 percent. Ratios will vary from bank to bank, depending on the accuracy of a bank's loan classification, how active it has been in the disposal of nonperforming loans, and the level of its capital adequacy, said the China Banking Regulatory Commission, the country's top banking regulator, in a recent notice.

According to the CBRC, if a bank has calculated 100 percent of its loans that are past due by 90 days or more as nonperforming loans, the regulatory requirement on its ratio of allowance for loan impairment losses to nonperforming loans will be lowered from 150 percent to 120 percent. The requirement on its ratio of allowance for loan impairment losses to total loans will also be lowered from 2.5 percent to 1.5 percent.