The reform of provision system is a "crucial battle" of China's banking reform, said Zhou Xiaochuan, governor of People's Bank of China on May 24 at China Economic Summit 2005 of the Eighth Beijing High-Tech Exposition.

The provision system Zhou mentioned refers to the system of withdrawing reserve in order to write-off damage. Currently China's banking industry is badly short of non-performing loan (NPL) provision, Zhou said.

Zhou said, the success of the reform in China's banking industry depends on whether NPL will emerge in great amount again. In tackling the problem, efforts should be made in both controlling new NPL and in overhauling the provision system to improve banks' ability to deal with NPL.

According to statistics from China Banking Regulatory Commission, till the end of 2004, RMB 1,202.7 billion yuan of provision for loan and lease losses should have be withdrawn in China's major commercial banks, while RMB 242.9 billion yuan has been extracted, a gap of RMB 959.8 billion yuan.

By People's Daily Online