How China’s new asset risk classification will affect banks

Ming Tan CFA, S&P Global Ratings

Moody’s Investors Service

China’s new asset risk classification will strengthen banks’ reporting standards and gradually reduce inconsistency in their financial asset classification, says Fitch Ratings. Successful implementation will reduce management discretion over the recognition of asset impairments, and if executed consistently, would improve the banking sector’s overall reporting practices and transparency. These are potentially positive for our assessment of Chinese banks’ operating environment (BBB-/stable) and their asset quality. However, the rules do not eliminate the potential for regulatory intervention or forbearance over asset classification, and the extent of the disclosure may also impact the effectiveness of the new rules.

PRODUCT WATCH

China’s risk classification of problem assets will get stricter under the new rules. This will minimize opportunities for regulatory arbitrage. The new measures could improve asset quality indicators for banks by making them more reflective of macroeconomic trends and corporate health. This could reduce the somewhat counter-intuitive phenomenon of asset quality improving through periods of economic stress. The measures could lead to tighter recognition of restructured loans by addressing some questionable practices, given the vagueness of current rules. Nonetheless, restructured loans can now be classified as special mention loans, which are more relaxed than matured banking systems that typically classify such exposures as non-performing loans (NPL).

StanChart, Allinpay enables PayNow QR in Hong Kong

Standard Chartered Bank and financial technology service provider Allinpay have teamed up to enable Allinpay’s Hong Kong merchants to accept PayNow instant payments in Singapore dollars, allowing the currency to be used to pay in Allinpay’s over 30,000 acceptance points in Hong Kong.

The SGD-HKD exchange rate is fetched in real-time and displayed at the pointof-sale device upon checkout. Funds will be deducted from the user’s SGD bank account in Singapore immediately to complete the transaction.

“We are confident that this partnership will offer a real-time and seamless digital payment experience through Allinpay’s integrated platform to truly meet our customers’ needs for better cross-border payments, cost savings and mobile lifestyle,” said Tay Tiong Hean, general manager of

Allinpay Merchants Services (Singapore).

The solution gives merchants in Hong Kong another avenue to generate incremental revenues from Singapore travellers as normal travels resume following the easing of COVID-related restrictions in the city.

Singapore travellers can now make cashless purchases at participating merchants in Hong Kong, and have the visibility of the exact amount paid in SGD whilst enjoying savings in FX conversion and administration fees.

“With capabilities to access over 20 instant payments infrastructures globally, we look forward to extending this solution to more markets in the future, enabling our fintech partners to deliver a fast and frictionless experience to their merchants and boost the tourism economy,” Ankur Kanwar, head of cash products, Singapore and ASEAN, Standard Chartered Bank commented.

The detailed directions on risk classification will gradually close the gap between impaired loans and non-performing loans and improve the transparency and disclosure of banks’ asset quality. As a result, we expect some mid-sized banks and small regional banks to report higher NPL ratios, whilst large banks will be less affected as they already follow stringent risk classification standards.

The measures also improve banks’ risk classification by focusing on the debt-servicing capability of borrowers instead of on a single loan. They stipulate that if 10% of a non-retail borrower’s debts from a bank are classified as non-performing, all of its debts from the bank should be classified as such. Additionally, if 20% of a non-retail borrower’s debts from all commercial banks are overdue for more than 90 days, banks should classify all of its debts as non-performing.