Tighter Bank Regulatory Rules Delayed

Data Analysis 09:42:13AM Jun 07, 2012 Source:SMM

Jun. 7 - China postponed the implementation of tougher regulatory rules on commercial banks for a second time as the economy continues to soften amid rising global uncertainties.

The State Council, China's Cabinet, announced on Wednesday that the new rules, based on the new global regulatory standards, set tougher criteria for lenders' capital adequacy, provisions, leverage and liquidity conditions, and will take effect at the beginning of 2013.

The new requirements are in accordance with the Basel II and Basel III agreements, set by the Basel Committee on Banking Supervision, a global group of central bank governors, on bank capital adequacy and liquidity.

Beijing planned to put the new rules into effect at the beginning of this year to better contain risks generated as a result of large-scale lending during the financial crisis, but later postponed the implementation to July as further weakening calls for a looser monetary stance and banking regulation.

Reuters reported earlier that the tougher criteria were put off again to next year.

The stricter criteria include a capital adequacy ratio of 11.5 percent for major banks and 10.5 percent for non-systemically important banks, a provision ratio for outstanding loans of 2.5 percent, a leverage ratio of 4 percent, and a liquidity coverage ratio and net stable funding ratio above 100 percent, according to draft rules released by the China Banking Regulatory Commission last year.

According to the statement, the regulator will allow lenders to include "excess" loan-loss provisions as capital, and will grant a 10-year grace period for them to phase out issued capital instruments that are unqualified under the new rules.

The new regulation set "reasonable" schedules for banks to meet the new standards and will help to maintain "appropriate" credit growth, with risk weightings for small-sized enterprise loans and individual credits lowered and those of interbank liabilities increased "appropriately", it said.

The world's second-largest economy registered growth of 8.1 percent in the first quarter, the slowest pace in nearly three years. The official purchasing managers' index, an indicator of manufacturing activity, shrank to 50.4 from 53.3 in April.

May Yan, director of Barclays Capital Asia and a banking analyst, said the postponed implementation of the tougher standards and a prolonged grace period are a substantial change for the country and indicates the huge macro pressure on authorities, as it is eager to promote credit expansion to shore up the economy.

"It will be difficult to see a significant turnaround in economic growth absent a rebound in credit," said Charlene Chu, head of Chinese bank ratings at Fitch Ratings.

China's new yuan-denominated lending has repeatedly fallen short of expectations since the year began. Banks extended 739.6 billion yuan ($116 billion)in local currency loans in April, down 20.8 billion yuan from a year earlier, according to central bank data.

Fitch said that 2012 is shaping up to be the first year since 2008 in which the net amount of new credit extended to the economy falls below the previous year.

Tighter Bank Regulatory Rules Delayed

Data Analysis 09:42:13AM Jun 07, 2012 Source:SMM

Jun. 7 - China postponed the implementation of tougher regulatory rules on commercial banks for a second time as the economy continues to soften amid rising global uncertainties.

The State Council, China's Cabinet, announced on Wednesday that the new rules, based on the new global regulatory standards, set tougher criteria for lenders' capital adequacy, provisions, leverage and liquidity conditions, and will take effect at the beginning of 2013.

The new requirements are in accordance with the Basel II and Basel III agreements, set by the Basel Committee on Banking Supervision, a global group of central bank governors, on bank capital adequacy and liquidity.

Beijing planned to put the new rules into effect at the beginning of this year to better contain risks generated as a result of large-scale lending during the financial crisis, but later postponed the implementation to July as further weakening calls for a looser monetary stance and banking regulation.

Reuters reported earlier that the tougher criteria were put off again to next year.

The stricter criteria include a capital adequacy ratio of 11.5 percent for major banks and 10.5 percent for non-systemically important banks, a provision ratio for outstanding loans of 2.5 percent, a leverage ratio of 4 percent, and a liquidity coverage ratio and net stable funding ratio above 100 percent, according to draft rules released by the China Banking Regulatory Commission last year.

According to the statement, the regulator will allow lenders to include "excess" loan-loss provisions as capital, and will grant a 10-year grace period for them to phase out issued capital instruments that are unqualified under the new rules.

The new regulation set "reasonable" schedules for banks to meet the new standards and will help to maintain "appropriate" credit growth, with risk weightings for small-sized enterprise loans and individual credits lowered and those of interbank liabilities increased "appropriately", it said.

The world's second-largest economy registered growth of 8.1 percent in the first quarter, the slowest pace in nearly three years. The official purchasing managers' index, an indicator of manufacturing activity, shrank to 50.4 from 53.3 in April.

May Yan, director of Barclays Capital Asia and a banking analyst, said the postponed implementation of the tougher standards and a prolonged grace period are a substantial change for the country and indicates the huge macro pressure on authorities, as it is eager to promote credit expansion to shore up the economy.

"It will be difficult to see a significant turnaround in economic growth absent a rebound in credit," said Charlene Chu, head of Chinese bank ratings at Fitch Ratings.

China's new yuan-denominated lending has repeatedly fallen short of expectations since the year began. Banks extended 739.6 billion yuan ($116 billion)in local currency loans in April, down 20.8 billion yuan from a year earlier, according to central bank data.

Fitch said that 2012 is shaping up to be the first year since 2008 in which the net amount of new credit extended to the economy falls below the previous year.