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 decision was made by an executive meeting of the State Council, or cabinet, after hearing the report by the China Banking Regulatory Commission (CBRC). The meeting was presided over by Premier Wen Jiabao.
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.
Banks will be given a grace period of 10 years to clean up their unqualified capital tools that have already been sold, according to a statement released after the meeting.
Under new regulations, systematically important banks will be subject to a capital adequacy ratio (CAR) of 11.5 percent, while other banks will be subject to a CAR of 10.5 percent. Both requirements remain unchanged from the country's existing regulatory rules.
The stricter criteria also include 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 new regulations allow lenders to include "excess" loan-loss provisions as capital, and define a series of "qualified standards" for capital tools such as subordinated bonds.
Banks are required to expand the scope of their risk supervision framework, adding operational risks into the current one that highlights credit and market risks, according to the statement.
The new regulations also clarify rules that encourage banks to carry out financial innovation and increase loans for small businesses and individuals to support the real economy.
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.
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.
Source:china.org