REGULATORS are telling banks to distribute excess provisions for soured loans to investors as part of attempts to curb accounting malpractice.

Banks with provisions exceeding 300 percent of their nonperforming loan balances would be seen as having “a tendency to hide their profits” and would need to distribute reserves beyond that amount as dividends, according to draft rules released by the Ministry of Finance. The loan-loss provisions have been long seen as a key swing factor for earnings. The ministry is seeking public feedback on the rules through Oct. 26.

China’s financial regulators are pressing on with a two-year campaign to reduce risks in the world’s largest banking system by increasing fines on transgressions including inflating deposits, understating bad loans and misusing client funds.

While the bad-loan coverage ratio averages 191 percent across the industry, including at state-owned banks, the buffer stood at 461 percent at private banks at the end of June, official data showed.

The banking regulator last month identified a slew of wrongdoings after on-site checks at some smaller lenders, prompting it to call for tougher supervision. (SD-Agencies)