Regulator puts hold On basel risk rules

PUBLISHED : Thursday, 15 December, 2011, 12:00am
UPDATED : Thursday, 15 December, 2011, 12:00am


The mainland banking regulator is expected to postpone the introduction of a capital adequacy rule that would require banks to raise about 400 billion yuan (HK$488 billion) from capital markets over the next few years.

The China Banking Regulatory Commission began to seek public comment in August on the new rule in response to the Basel III guidelines on liquidity and capital that are designed to help lenders improve risk management. The rule was planned to be introduced gradually from January 1 next year.

Under the draft rule, large banks will be subject to a minimum capital adequacy ratio (CAR) of 11.5 per cent while others must keep a minimum level of 10.5 per cent, as well as an additional requirement of up to 2.5 per cent.

The CAR is a measure of a bank's capital to its risk. It was at 12.3 per cent at mainland banks at the end of September.

The CBRC is now likely to introduce the rule in the second half of next year to allow lending demand to counter an economic slowdown, according to an academic source who was consulted by the commission on the policy recently.

Liu Mingkang, an advocate of strict controls over commercial banks, retired as chairman of the banking regulator in October. His successor Shang Fulin, former head of the China Securities Regulatory Commission, hosted a symposium with bankers and academics last week to discuss future policies.

Many banks are opposed to the 'harsh capital requirements' under which their asset expansion would be severely limited, according to the source.

Banks extended an unprecedented 9.6 trillion yuan in new loans in 2009 to fund the nation's infrastructure stimulus projects. As the CBRC became more concerned about loan quality, it has toughened capital requirements to cushion the impact from future bad loans.

The thirst for capital has forced many lenders to raise huge amounts of funds from capital markets over the past two years, depressing their stock prices.

'As economic growth is slowing down, banks need a sufficient capital base so they can support the real economy sector,' an unnamed CBRC source was quoted by the Economic Information Daily, as saying yesterday.

The CBRC was not available for comment yesterday.

CBRC vice-chairman Wang Zhaoxing said last week that it would try to establish 'more suitable' capital requirements for mainland banks.

The Basel guidelines were designed to address problems exposed in the global financial crisis. China's capital requirements should be a good balance between international requirements and China's specific conditions, Wang said.