China's top banking regulator has told commercial banks to strengthen management over loan collateral to contain financial risks.
Aware of some management irregularities in some commercial banks, the China Banking Regulatory Commission (CBRC) made specific demands concerning classification, evaluation and collateral rate determination in a guideline released Monday.
Commercial banks should make detailed categorization of collateral, while the catalogue of acceptable collaterals should be updated at least once a year, according to the CBRC.
The regulator also ordered banks to revalue collateral at least once a year, and the ceiling of collateral rates should be adjusted in accordance with business cycles, risk profiles and market condition.
Zeng Gang, an economist with the Chinese Academy of Social Sciences, said better management of quality and authenticity of collateral would help reduce losses and boost banks' ability to handle bad assets.
In addition, the CBRC asked commercial banks to maintain a balance between collateral loans and credit loans to provide better financial services to small and micro enterprises.