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UPDATE 2-Fourth Chinese lender joins list of globally important banks
November 3, 2015 / 8:17 AM / in 2 years

UPDATE 2-Fourth Chinese lender joins list of globally important banks

* China Construction Bank added to ‘G-SIB’ list

* Shares in China Construction Bank down 1.5 percent

* BBVA removed from list of globally important banks

* RBS required to hold less extra capital in new list

* HSBC, JP Morgan must hold the most extra capital (Adds further details on changes, banks in list)

By Matt Scuffham

LONDON, Nov 3 (Reuters) - China Construction Bank (CCB) has joined a list of lenders deemed important to the stability of the world’s financial system, becoming the fourth from China in a global group of 30 required to hold extra capital.

CCB was the only newcomer to an annual list issued on Tuesday by the Financial Stability Board (FSB), which was established after the 2007-09 global financial crisis to protect the world from future such shocks.

Membership of the group can be costly: not only does holding extra capital depress profitability, banks also come under more intense regulatory scrutiny.

CCB, China’s second biggest bank, has expanded its international operations over the past two years, launching an exchange-traded money-market fund in London, acquiring a business in Brazil and gaining access to the London Metal Exchange by buying a British metal trading firm.

The global list is headed by HSBC and JPMorgan . They will have to hold 2.5 percentage points of extra capital beyond that required by global rules known as Basel III, a requirement unchanged from last year due to the FSB’s view they remain the two most systemically important banks.

The extra capital requirements come into effect at the start of 2016, with the full amount phased in over three years.

Four banks - Barclays, BNP Paribas, Citigroup and Deutsche Bank - need to hold 2 percentage points of extra capital, also unchanged from last year.

Analysts at Citi said the publication of the list of what are known as G-SIBs was positive for Canada’s RBC, whose shares was up 1.1 percent, because its name was not on it.

“Royal Bank of Canada was expected by some to be designated as G-SIB in this year’s review. The fact that RBC avoided the designation should be positive for sentiment and the shares,” said Citi analyst Stefan Nedialkov.

Officials at CCB did not respond to requests for comment on its addition to the list. Its shares closed down 1.5 percent following the announcement on Tuesday.

It is in the bottom “bucket” or category, determined by size, geographic spread, complexity and potential impact on the financial system. This requires it to hold 1 percentage point of extra capital.

The banks on the list include 15 European and eight U.S. banks, and three from Japan.

CHINESE BAD LOANS

CCB’s core tier 1 ratio, a key measure of its financial strength stood at 12.1 percent at the end of last year, higher than the average for global banks.

Although Chinese banks are seen as relatively well-capitalised compared with global rivals, mounting bad loans have resulted in them turning to investors for fresh funds in 2015, despite raising a record amount last year.

Due to its size, CCB would not be expected to have difficulty raising new funds if it required them, with domestic institutions likely to support such a move.

The FSB said Spain’s BBVA had been removed from the list, meaning it will no longer have to hold the extra capital. A spokesman for Spain’s second-biggest bank said the decision reflected the bank’s focus on retail banking rather than riskier investment activities.

Shares in BBVA were up 0.4 percent.

The FSB reduced the capital surcharge imposed on Britain’s Royal Bank of Scotland to 1 percentage point, from 1.5 percentage point last year. RBS was down 0.6 percent at 1500 GMT. The regulator did not make any other changes to the list.

It also published an updated list of nine global systemically important insurers (G-SIIs), adding one new insurer, Aegon and removing Generali. The next list will be published in November 2016. (Additional reporting by Steve Slater and Lawrence White; editing by Sinead Cruise and Philippa Fletcher)

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