Stricter rules on bank ratios
By Lydia Chen |
August 16, 2011, Tuesday
|
Print Edition
Print Edition
CHINA'S commercial banks need to maintain their capital adequacy ratio at least 8 percent and their core adequacy ratio must not drop below 4 percent or they will face punishment, according to draft rules by the top banking regulator.
The draft, drawn by the China Banking Regulatory Commission, is designed to ensure the country's banking industry comply with the Basel III framework to reduce potential risks in the domestic banking system.
The Tier-1 core adequacy ratio should be at least 5 percent and Tier-1 capital adequacy ratio should be not less than 6 percent, according to the rules posted by the CBRC on its website yesterday.
The rules also set the minimum capital adequacy ratio from 2012 for systematically significant banks at 11.5 percent and 10.5 percent for non-systematically significant lenders.
"Any lender who cannot comply with the minimum requirement will face strict punishment," the draft stressed, without detailing what penalties would be enforced.
Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting time liabilities and other risks, including credit risk and operational risk.
The CBRC's announcement comes at a time when Chinese banks plan to raise funds in the coming months to replenish their capital base due to last year's lending binge.
A CBRC spokesman told Xinhua news agency in a previous report that the regulator is soliciting public opinion on the new rules although he believes the revision will only have a limited impact on banks' current capital adequacy ratio levels.
By the end of March, the average capital adequacy ratio of commercial banks was 11.8 percent, down 0.4 percentage point from the end of 2010.
The capital adequacy ratio for the Agricultural Bank of China, one of the four largest state-owned lenders, declined to 11.4 percent in the first quarter of this year, below the CBRC's requirement, forcing the lender to issue bonds worth 50 billion yuan (US$7.7 billion) to boost its ratio.
The draft, drawn by the China Banking Regulatory Commission, is designed to ensure the country's banking industry comply with the Basel III framework to reduce potential risks in the domestic banking system.
The Tier-1 core adequacy ratio should be at least 5 percent and Tier-1 capital adequacy ratio should be not less than 6 percent, according to the rules posted by the CBRC on its website yesterday.
The rules also set the minimum capital adequacy ratio from 2012 for systematically significant banks at 11.5 percent and 10.5 percent for non-systematically significant lenders.
"Any lender who cannot comply with the minimum requirement will face strict punishment," the draft stressed, without detailing what penalties would be enforced.
Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting time liabilities and other risks, including credit risk and operational risk.
The CBRC's announcement comes at a time when Chinese banks plan to raise funds in the coming months to replenish their capital base due to last year's lending binge.
A CBRC spokesman told Xinhua news agency in a previous report that the regulator is soliciting public opinion on the new rules although he believes the revision will only have a limited impact on banks' current capital adequacy ratio levels.
By the end of March, the average capital adequacy ratio of commercial banks was 11.8 percent, down 0.4 percentage point from the end of 2010.
The capital adequacy ratio for the Agricultural Bank of China, one of the four largest state-owned lenders, declined to 11.4 percent in the first quarter of this year, below the CBRC's requirement, forcing the lender to issue bonds worth 50 billion yuan (US$7.7 billion) to boost its ratio.
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