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January 15, 2010

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Home » Business » Finance

Regulator's call boosts banks

BANK shares rose yesterday following the banking regulator's call for them to beef up their capital management and to enhance their capability to trim risks.

Thirteen out of the 14 listed banks on the Chinese mainland climbed while the benchmark Shanghai Composite Index rose 1.35 percent to close at 3,215.55 yesterday.

The China Banking Regulatory Commission urged commercial banks to ensure they have adequate capital and strengthen their management of capital to control risks amid the rapid rise in credit.

Banks are required to set internal targets for their capital adequacy ratios for the next three years, which must be higher than the regulatory minimum, the CBRC said in a new guideline.

They also must set up an internal capital management system to contain risks, it said, adding that it will step in if banks fail to demonstrate their ability to control risks.

Banks are asked to strengthen risk management supervision on businesses including asset securitization and derivatives.

Analysts said the requirement on capital adequacy ratio will help banks improve the quality of assets in the long run, though they may face restraint on credit expansion in the short term. The CAR is the main gauge of a bank's capital strength. The higher the ratio, the more funds a bank has to expand its credit.

"The capital adequacy ratio is one of the main measures to put a lid on over-liquidity," said Terence Lau, an Ernst & Young partner.

Listed banks are now required to have a minimum CAR of 10 percent, 2 percentage points higher than the minimum on non-listed banks.

There has been speculation that listed banks may face a 12 percent capital condition to soak up liquidity.

Chinese banks extended a record high of 9.21 trillion yuan (US$1.35 trillion) in new loans in the first 11 months of 2009.

The new credit is expected to top 10 trillion yuan last year and to reach 8 trillion yuan this year.


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