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Banks forced to set aside more for loss provisions

The government plans to require banks to set aside more funds to cover potential loan losses, part of a plan to cut dud loans to less than 5 percent of total lending.

Banks will have to provide for between 2 percent and 100 percent of the loans they disburse, the Bureau of Monetary Affairs said in a statement yesterday.

The amount will vary according to the category of the loans, sorted into five groups instead of the existing four, depending on their recovery chances.

Under the new rules, loans that have capital and interest unpaid for more than three months will be labeled non-performing, compared with more than six months under current rules.

Lenders wrote off a combined NT$413.9 billion (US$11.9 billion) last year as they accelerated a cleanup of their books. The bad-loan ratio, including assets under surveillance, fell to 8.6 percent at the end of March from 8.89 percent at the end of December, the central bank said last month.

Current rules require a provision of between 50 percent and 100 percent for only two of four categories of loans.

Under the new rules, the additional provisions will amount to about N$50 billion being set aside by all the nation's banks, a Chinese-language newspaper reported yesterday.

The new regulations will be open for lenders' feedback for two months before they take effect, though the regulator will provide a two-year period for banks to adjust to the increase in capital burden.
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