PBoC Weakens Balance Sheets to Ease Impact of Rising NPLs

Caixin: Gov't May Let Banks Hold Less Cash in Reserve for Sour Loans
The required provision coverage ratio, which compares the amount of cash banks have in reserve with that of non-performing loans, may be reduced to as low as 130 percent for three big lenders and 140 percent for another four, the sources said. The current floor for the ratio is 150 percent.

The banks that are eligible for the bigger cut include Agricultural Bank of China, China Construction Bank and Bank of China. Industrial and Commercial Bank of China, Bank of Communications, China Merchants Bank and Industrial Bank may see their ratio cut by 10 percentage points, the sources said.

...Several bank employees told Caixin earlier that their profits grew to a large extent because their banks reduced the amount of cash set aside for dealing with bad loans.

They said this was a common practice and banks often set more cash aside than necessary when incomes were good so they could use it during difficult times.
It is prudent for banks to be extra conservative during the good times and easier with credit in the bad times because the risk/reward favors lending during credit crunches. This smacks more of a move to expand lending heading into a period of impaired balance sheets, to offset the impact of rising NPLs on banks' ability to lend.

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