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Banks should not rely solely on capital market

By Qiang Xiaoji (chinadaily.com.cn)
Updated: 2010-04-13 17:14

China's banking regulator had been attaching great importance to building "fire walls" among Chinese banks to prevent internal conflicts since 2003, the Securities Times reported Tuesday.

Commercial banks should not rely solely on the capital markets for financing, which was just common sense but often forgotten, the report said.

Liu Mingkang, chairman of the China Banking Regulatory Commission (CBRC), made the remarks at the London School of Economics Asia Forum recently held in Beijing.

Liu said at the forum that the CBRC had asked major Chinese commercial banks and the small and medium-sized commercial banks to raise their capital adequacy ratio to 11 percent and 10 percent, respectively to deal with the financial crisis.

The banking regulator also emphasized the quality of the capital. According to the regulator's requirements, equity and retained earnings should account for more than 75 percent of the core Tier I capital, much higher than that of many developed countries. The provisioning coverage ratio increased to 166 percent from 19.7 percent in 2003, making the banks capable of absorbing expected losses, Liu said.

He also said the CBRC would strictly control the risks in the banking industry. Loans to a single customer should not exceed 10 percent of the bank's net value, and loans to a corporate customer should be less than 15 percent of the lender's total net value, he said.

The regulator would also watch closely the non-performing loans, Liu added.