Three of China's big commercial banks said they cut their loan-loss allowance ratio to around 150 percent, an indication the country's banking regulator may be lowering the amount of cash some banks need to set aside for future losses.
For China's big commercial banks, the move allows lenders to report stable earnings, even as the volume of bad loans rise and revenue from traditional lending declines, analysts said.
"It's a compromise," said Patricia Cheng, head of China financial research for CLSA in Hong Kong.
"Even though banks are sitting on less buffer, they are hoping that with monetary easing, defaults can be managed," Cheng said.
The provision ratio, which measures funds set aside for future losses as a percentage of current nonperforming loans (NPL), aims to buffer bank balance sheets against future losses.
China Construction Bank, the country's second-biggest lender, reported on Friday its loan-loss allowance ratio reached 151.71 percent, a slight increase.
Bank of Communications said, however, its provision ratio declined to 151.24 percent over from 155.57 percent on December 31.
The China Banking Regulatory Commission, which had mandated provision coverage ratios of 150 percent for commercial lenders, has yet to officially comment.
Industrial and Commercial Bank of China (ICBC) cut its loan-loss allowance ratio to 141.21 percent, from 156.34 percent at the end of December, while at Bank of China the ratio fell to 149.07 percent.
Bank of China said in an e-mail the fall in coverage ratio was due to an increase in bad debt write-offs, and maintained that its provisions ratio remained higher than other global systemically important banks.
ICBC, Bank of Communications and Agricultural Bank of China reported negligible profit growth on Thursday.
While the NPL ratios remained stable, the volume of NPLs for the major lenders in China increased in the three-month period by 53.2 billion yuan ($8.21 billion).
"There is no question that there is a bit of earnings management going on here," said Matthew Smith, a banking analyst at Macquarie.
"This is not unique to the Chinese banks. Banks pretty much everywhere do the same thing."
"We're expecting NPLs to grow further, but they want to use this to smooth earnings in the coming quarters," said Edmond Law, a banks analyst at UOB Kay Hian (Hong Kong) Ltd.
