China drafts new rules on bank capital adequacy

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China’s banking regulator on Monday published new rules on banks’ capital requirements as part of efforts to implement Basel III guidelines to help lenders rein in risks. The rules were announced by the China Banking Regulatory Commission and confirmed an earlier report by Reuters. Under the new rules, which are open to public review, major Chinese banks, or systematically important ones, are subject to a minimum capital adequacy ratio of 11.5 per cent while others must keep a minimum capital requirement of 10.5 per cent.
The CBRC also said that big banks must set a counter-cyclical additional requirement of up to 2.5 per cent, if credit growth is abnormally strong, which means the required capital base could be raised to as high as 14 per cent for major lenders. The regulator said major banks must meet the new capital requirement by the end of 2013 and other lenders must achieve the goal by the end of 2016.
“The strong capital strength has laid a solid foundation for Chinese banks to prevent a possible hard hit from the latest round of financial crisis and guarantee the stable performance of the sector,” the agency said in a statement on its website. The weighted-average capital adequacy ratio (CAR) of Chinese banks rose to 12.2 per cent at the end of June from 11.8 per cent three months ago, the banking regulator said. In general, a higher capital adequacy ratio is seen to be good for the financial system as it forces lenders to set aside more cash for rainy days, to the benefit of depositors. The downside is that it could crimp profitability.