Banks given capital adequacy ratio timetable

By Wang Xiaotian (China Daily)
Updated: 2011-05-27 09:21
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Updated regulations emphasize the risks in a variety of domestic loan vehicles

BEIJING - The China Banking Regulatory Commission (CBRC) on Thursday required six major banks to submit the results of their capital-adequacy ratio (CAR) calculations before June 3.

The CARs are based on new standards highlighting the risks related to government-backed loans and the property market.

The six banks are China Development Bank Corp, Industrial and Commercial Bank of China Ltd, China Construction Bank Corp, Agricultural Bank of China Ltd, Bank of Communications Ltd, and China Citic Bank Corp Ltd. Other banks can also apply to join the process, said the CBRC.

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Banks were also encouraged to submit an analysis of the impact of the new standards on CARs, when handing in the results so that the banking regulator could evaluate the influence of the standards on lenders, and make any necessary adjustments.

In a closed-door meeting with the banks, Chen Ying, deputy director of the CBRC's international department, highlighted three major sources of lending risk in the current situation. They are government-backed loans to businesses - including loans through local government financing vehicles and loans to railway, road and other infrastructure construction projects - property loans, and medium and long-term lending.

Chen said for the government-backed loans, an adjustment factor of 1.25 will be multiplied with other relevant factors.

When calculating the CAR, lending risks through local government financing vehicles will be weighted from 100 to 300 percent, with the risks of loans to railway, road and other infrastructure construction projects weighted at 110 percent, and property lending risks weighted at 150 percent, said Chen.

Operational risks will also be included in CAR calculations for the first time, and the calculation of credit risk will be classified in eight grades, from four previously.

"The new CAR calculation method that reflects more concern over the risks of government-backed loans will put greater pressure on lenders," said Chen.

Zhan Dongsheng, a spokesman for Agricultural Bank of China (ABC), told China Daily earlier that the bank's lower-than-required CAR at the end of the first quarter was mainly due to new calculation methods applied by the CBRC to counter the risks of loans made through local government financing vehicles.

ABC reported a CAR of 11.4 percent at the end of the first quarter, 0.1 percentage points lower than the official requirement for major banks.

The CBRC announced earlier this month that new rules setting tougher criteria for lenders' capital adequacy, provisions, leverage, and liquidity conditions will take effect at the beginning of 2012, based on the new global regulatory standards set by the Basel Committee on Banking Supervision.

Fan Wenzhong, head of the international department of the CBRC, said that the details regarding the application of the new standards will be completed no later than the third quarter.

The new rules will encourage banks to continue increasing their CAR. For banks that are not systemically important, the requirement stands at 10.5 percent.

Facing a higher CAR and tightening controls over credit because of the government's "prudent" monetary stance, several Chinese banks have announced plans to issue subordinated debt on the inter-bank bond market.