Banking

CBRC sees little impact from Basel III on banks

By Yang Ning and Wang Bo (China Daily)
Updated: 2010-09-19 09:21

An employee stacks packs of currency at a bank in Taiyuan, Shanxi province. Provided to China Daily

Regulator will monitor progress of reform to gauge long-term effects

BEIJING - The China Banking Regulatory Commission (CBRC) on Friday said the new capital standards set by global regulators will have a limited impact on Chinese banks in the short term.

The banking regulator will, however, keep a close watch on the progress of the reforms and gauge its long-term impact on lenders.

"We will hold discussions with domestic lenders and work out the overall framework for capital requirement at an appropriate time, and guide local banks to gradually adapt to the new capital standards," said Fan Wenzhong, head of the international department at the CBRC.

Fan's remarks follow earlier reports that China is working on new capital standards for Chinese banks, keeping in pace with the agreement on strengthening banking supervision reached by central bankers and officials from 27 countries on Sept 12.

The reform package, known as Basel III, will force big global banks to hold more capital against a wide range of their loans and investments, as weaknesses in the previous Basel II rules have been blamed for the financial crisis. However, the new rules need to be approved at the next G20 meeting in Seoul in November this year.

The regulator said Chinese lenders are in a better shape than their western counterparts in applying new Basel rules. By the end of June this year, capital adequacy ratio (CAR) of domestic commercial lenders stood at 11.1 percent, while core capital adequacy ratio reached 9 percent. Core capital accounted for 80 percent of the total capital, according to CBRC data.

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Earlier reports said the regulator might require the big lenders, or the so-called "systemically important" banks, to lift their capital adequacy ratio to as high as 15 percent by the end of 2012, triggering fears that the tighter norms would force Chinese lenders to raise more funds from the capital market.

The report also said the regulator is drafting a plan that would call for Tier 1 capital of 8 percent, with the overall ratio set at 10 percent. The plan would add a buffer of up to 4 percent to protect against economic fluctuations, plus a further 1 percent for "systemically important" banks.

However, the banking regulator reiterated that its CAR requirement for large Chinese banks has not changed, and remains at 11.5 percent, while for mid-sized lenders it is 11 percent.

The regulator said reforms are vital for international banking supervision, as it will help global banks become more resilient to financial shocks.