China bends over backwards for its banking industry

Regulators are inclined to give Chinese banks more time to meet tougher capital rules requirements.

The China Banking Regulatory Commission is expected to impose new capital supervision rules on banks from July 1, but not as strictly as has been expected. The 21st Century Business Herald said CBRC will most probably give banks a longer grace period to meet tougher capital requirements intended to limit credit risks.

To have been implemented Jan. 1, the new rules require banks of systemic importance in China meet a minimum 9.5% core capital adequacy ratio and a minimum 11.5% capital adequacy ratio by 2013.

China has postponed implementation because of concerns stricter requirements will squeeze bank lending. This, in turn, could threaten China’s economy just as global problems challenge economic growth.

There are also fears the rules could trigger a new round of fund-raising efforts by domestic banks to meet the new capital requirements.

The final draft of the rules, when approved, is unlikely to contain significant changes. Minor revisions are possible, however.

As part of its adherence to the Basel III regime, CBRC last August released a series of draft rules that included increasing risk weightings for mortgage loans to second-home buyers and holdings of debt issued by other banks.

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