China delays new, tougher bank capital rules
UPDATED @ 07:12:38 PM 06-06-2012
BEIJING, June 6 – China will delay bringing in tougher capital requirements for its banks until January to avoid squeezing credit conditions and being a further drag on already slackening economic growth.
Big banks will be subject to a minimum capital adequacy ratio of 11.5 per cent when the new rules are introduced in January next year, the government said in a statement on its website, tougher than the previous requirement of 8 per cent.
Sources said last month that Beijing was set to delay enforcing the new rules after bank executives complained they were too harsh to be met this year, as previously planned.
“It is important to improve supervision of the banking sector and deepen the reform of the industry,” China’s Cabinet said in the statement, adding that capital requirements for loans to smaller firms were also relaxed to aid economic growth.
“China will cut the risk-weighting levels for loans to small firms and individuals to increase credit supply to those areas and provide more support for the real economy,” it said.
China’s tough new capital requirements are part of its efforts to implement Basel III guidelines that are being enforced globally, after the 2009/09 financial crisis highlighted the need for banks to be more resilient against credit stresses.
The Basel III rules require banks to hold a total of 7 per cent in top quality capital, some way below what China is telling its big banks should be a minimum capital adequacy ratio.
The delay underscores growing concerns in China that the latest downturn in the world’s second-biggest economy is deeper than thought, especially as Europe’s debt crisis worsens. Analysts polled last month believe China’s economy could grow 8.2 per cent in 2012, its slowest in 13 years.
To support the economy and loosen credit constraints, Beijing has twice lowered reserve requirements for banks this year by a total of 100 basis points.
Acknowledging that banks may need help to relieve any credit strains, the Cabinet said lenders can include loan-loss provisions in their capital bases.
The Basel III rules are being phased in internationally over six years from 2013. Banks have long warned that complying with the rules in full, along with surcharges for the biggest lenders, could force them to cut back on loans to businesses, potentially hurting already struggling economies.
The Financial Stability Board, the regulatory arm of the world’s top economies represented at the Group of 20, said banks were making progress in strengthening their balance sheets.
Chinese banks’ capital strength was steady in January-March, with the weighted average capital adequacy ratio unchanged at 12.7 per cent from the previous quarter, and core capital adequacy at 10.3 per cent, according to data from the China Banking Regulatory Commission (CBRC).
In general, a higher capital adequacy ratio is seen as good for the financial system as lenders have more cash to cover the cost of unforeseen risks, benefitting depositors. The downside for investors is that a high ratio can crimp profitability. – Reuters