March 9, 2017 / 7:29 AM / 4 months ago

UPDATE 1-China to scrap intermediate category for banks' capital adequacy - sources

2 Min Read

* Banks' capital adequacy assessment included in MPA framework

* Banks who fail the assessment to face potential penalties

* Penalities include higher interest rates for SLF loans (Adds quote, details, background)

SHANGHAI, March 9 (Reuters) - China's central bank plans to tighten capital adequacy requirements by scrapping an intermediate category while assessing some commercial banks during the current quarter, three sources with direct knowledge of the matter said on Thursday.

The change was made in the central bank's so-called Macro Prudential Assessment (MPA) system, and marked the latest of a series of steps to contain risks in the banking system, the sources told Reuters.

"We got an oral notice from the central bank in February, and we have started to control the size of credit assets this month," said one of the three sources.

The removal of the "tolerance indicator" would make the MPA assessment stricter as a bank would either get a full score or zero.

Those scoring zero would face potential penalties from the central bank, including higher interest rates for standing lending facility (SLF) short-term loans.

The People's Bank of China has yet to respond to a Reuters request for comment.

The MPA assessment framework already included checks of loans, bond investments, equity investments and buybacks of financial assets, and deposits at non-financial institutions.

The central bank began taking into account off-balance sheet financing at commercial banks to its MPA assessment at the beginning of this year in a bid to control rising leverage. (Reporting by Shanghai Newsroom; Editing by Simon Cameron-Moore)

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