Money

Stricter bank rules will take effect in early 2012: CBRC

By Wang Xiaotian (China Daily)
Updated: 2011-05-04 09:50

BEIJING - The China Banking Regulatory Commission (CBRC) said on Tuesday that new rules setting tougher criteria for lenders' capital adequacy, provisions, leverage, and liquidity conditions will take effect at the beginning of 2012.

It published a guideline for adopting the new standards based on the Basel II and Basel III agreements, the new global regulatory standards set by the Basel Committee on Banking Supervision, a global group of central bank governors, on bank capital adequacy and liquidity.

"While catching up with international standards, we also retain some requirements widely used among Chinese commercial banks, such as a loan-to-deposit ratio of no more than 75 percent," said Fan Wenzhong, head of the international department under the CBRC at a news briefing on Tuesday. Commercial banks are expected to comply with all the new standards before the beginning of 2019, the CBRC said.

Fan said that details regarding the application of the standards - such as how to differentiate systemically important banks (banks that are too big to fail) from non-systemically important ones - will be completed no later than the third quarter.

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"And subsidiaries of foreign banks in China may have some waivers when it comes to application of the standards because they usually have fewer non-performing loans than Chinese lenders, and thus face greater pressure on indices such as the provision ratio," he told China Daily, adding that basically all the standards will be applied to these subsidiaries.

According to the guideline, the CBRC added leverage and liquidity ratios to the regulatory parameters, while setting provision ratio for outstanding loans, that is, ratio of the loan loss reserves (the amount set aside to cover non-performing loans) against outstanding loans, at 2.5 percent, with a grace period of two years for the larger banks and five or seven years for small and medium-sized lenders, based on their profitability and loss ratio.

The required leverage ratio - that is, the ratio of core capital to total assets - will be set at 4 percent, one percentage point higher than required by the Basel III agreement.

The regulator also required systemically important banks to meet the leverage ratio by the end of 2012, while other lenders must achieve the goal by the end of 2016.

The new rules will also encourage banks to continue increasing their capital adequacy ratio. The government-required level for major banks is 11.5 percent. For non-systemically important banks, the requirement stands at 10.5 percent.

The weighted average capital-adequacy ratio among Chinese banks reached 12.2 percent by the end of 2010, 0.8 percentage points higher than a year ago, while the core capital adequacy ratio increased by 0.9 percentage points to 10.1 percent over the same period, the CBRC said earlier.

Concerning liquidity parameters, banks will have to maintain the liquidity coverage ratio and net stable funding ratio above 100 percent.

Guo Tianyong, an economist and director of the Research Center of the Chinese Banking Industry at the Central University of Finance and Economics, said earlier that the new capital regulatory parameters, especially the 2.5 percent provision ratio, will put considerable pressure on banks in the long term.

Facing a higher capital-adequacy requirement and tightening control over credit due to the "prudent" monetary stance, several Chinese banks have announced plans to raise fund on the capital market.

"The fundraising attempts of commercial banks originated mainly from their own development demand instead of pressure from the new standards," said Wang Shengbang, director of international supervisory policy division at the CBRC.