Capital adequacy standards set for banks ( 2003-08-15 09:05) (China Daily)
A new regulation on capital
adequacy standards for commercial banks will be introduced this year, the China
Banking Regulatory Commission (CBRC) announced yesterday.
The regulation, the first of its kind, will be based upon the 1988 version of
the Basel Accord, the international banking industry's regulatory benchmark. But
it will also draw on a new version of the accord that is expected to be
finalized by the end of this year, it said.
The regulation will retain an 8 per cent minimum capital adequacy ratio
requirement, but will also include requirements for supervision and information
disclosure, two extra elements in the new accord.
The accord is only binding for "internationally active'' banks in 10
developed countries, but is used by banking regulators worldwide as a reference.
Most Chinese banks would find it difficult to meet the 8 per cent
requirement. Insiders said the new accord, which generally has stricter rules on
the calculation of risk-weighted assets, may decrease their capital adequacy
ratios by an average of 2 percentage points.
The banks are seeking ways to raise the ratio, their key barometer of risk
management capacity. They have lobbied the government for a recapitalization as
well as bond issuances, but have made little progress so far.
"Our continued use of the old accord is based on the reality in China,'' a
CBRC spokesman said in a statement.
Implementing the new Basel Accord in China now is unlikely to considerably
enhance its management of risk, but will push up capital requirements for the
country's banking industry, he said.
The commission said China will not consider applying the new accord by the
end of 2006, its implementation date in the 10 developed countries. But China
will embrace the accord as an opportunity to improve risk management in its
commercial banks.
"The new capital accord will provide our banking industry with a new look and
new opportunities,'' the spokesman said.
Major Chinese banks have started building risk management systems in
compliance with the new accord, and smaller banks are also actively seeking
input in the new accord.
"Considering that only part of the Chinese banking industry has started
implementing the five-category loan classification system (an internationally
accepted loan classification method), the propensity among commercial banks to
actively use the new accord for reference and improve risk management is
encouraging,'' the spokesman said.
The spokesman said the new accord may cause "negative impacts'' on capital
flows in developing countries. He said it also may put emerging market
commercial banks, especially their overseas branches and affiliates, at a
competitive disadvantage, but did not elaborate.
