China’s chief banking regulators said it will take years for their country to implement stricter capital requirements, seeking to assure investors that new rules will not cause an immediate decline in new lending.
In a recent statement, China’s Banking Regulatory Commission (CBRC) said that the measures it has implemented to force banks to deduct holdings of other lenders’ subordinated debt from their capital would be taken over the course of several years. Some estimates state that firms might cut lending by as much as 700 billion yuan ($102 billion U.S.) if that requirement was placed. It would also lower the average capital adequacy ratio by 0.6% according to China International Capital Corp.
The market responded positively to the news that China would refrain from measures that would lessen the amount of credit that banks would be able to offer. “The regulator is softening its stance as new lending growth began to moderate in July and August while the global economic recovery doesn’t seem as solid as many have expected,” said Dorris Chen, a Shanghai-based analyst. Dorris continued, “The market would certainly welcome the change as it eases liquidity concerns.”
The CBRC is hoping to “improve the capital quality of China’s banking industry”, in a recent statement. China’s banking regulator sent a draft of these new capital requirements to bank on August 19th, asking lenders to provide feedback on the new rules by August 25th.
In a separate statement, the CBRC announced that it has forced banks whose capital adequacy ratios who have fallen below 8% to curb expansion, including Shanghai Pudong Development Bank o and China Misheng Banking Corp. The two lenders have had to raise a combined $5.2 billion by selling shares. Last year, China raised capital adequacy requirements for publically traded lenders to 10% from 8%. This rate will be increased to 12% at the end of 2009.
