By John Foley
HONG KONG Aug 19 (Reuters Breakingviews) - Lenders will end
up well padded against bad debts under new plans -- a good job,
since lots are coming. But the distortions that promote risky
lending remain. With capital scarce, banks may also push more
loans through China’s worryingly large “shadow” banking system.
Full view will be published shortly.
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-- China’s bank regulator published new rules for lenders on
Aug. 15, proposing tougher requirements for capital held against
risky assets, and a reassessment of risk weightings for certain
kinds of loan. Banks deemed “systemically important” would have
to hold Tier 1 capital equivalent to 9.5 percent of their risk
weighted assets by 2013, while others would require ratios of
8.5 percent by 2016, the China Banking Regulatory Commission
-- China’s banks are currently measured using a Capital
Adequacy Ratio, which is roughly equivalent to Tier 2 capital in
other regimes, and a Core Capital Adequacy Ratio, analogous to
the widely used Tier 1 capital. Core capital can include equity,
retained earnings and preference shares, minus some deductions.
The new rules would also introduce a third measure equivalent to
equity Tier 1 capital.
-- The CBRC said that big banks must set an additional
counter-cyclical capital requirement of 2.5 percent when credit
growth is abnormally strong.
-- The core capital ratio of China’s banking system stood at
9.9 percent at the end of June. Banks are expected to record a
20 percent rise in earnings for 2011, state media outlet Xinhua
reported on July 29.
-- Banks have lent heavily in the past three years in order
to sustain economic growth. For 2011, the central bank directed
lenders to disburse 7-7.5 trillion yuan ($1.1-$1.2 trillion) of
loans, compared with just under 8 trillion yuan ($1.2 trillion)
in 2010, and 9.6 trillion yuan ($1.5 trillion) in 2009. New
loans in July 2011 totalled 493 billion yuan ($77 billion), a
-- Reuters story: China drafts new rules on bank capital
Backdoor bank rescue [ID:nLDE7500KC]
One country, two systems [ID:nN02223507]
(The author is a Reuters Breakingviews columnist. The
opinions expressed are his own)
-- For previous columns by the author, Reuters customers can
click on [FOLEY/]
(Editing by Peter Thal Larsen and Sarah Bailey)
Keywords: BREAKINGVIEWS CHINA/BASEL/
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