China is taking steps to establish a differentiated capital regulatory system for commercial banks in order to improve bank capital regulations, manage financial risk better, and bring lenders in line with international standards. The China Banking and Insurance Regulatory Commission, together with the People’s Bank of China, recently released a draft of administrative measures for the capital of commercial banks. The new regulations categorize commercial lenders into three tiers based on their asset size and risk profile and provide them with different capital regulatory programs.
Experts believe that the new regulations will help enhance the risk management of lenders in China, maintain the stability of the banking system, and improve financial risk management. Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co and a banking analyst, said that once implemented, the new regulations will help improve the risk management levels of lenders in China, maintain the overall stability of the banking system and better manage financial risk.
Moreover, the proposed regulations will put differentiated supervision over bank capital into practice, lower compliance costs for small and medium-sized lenders, and improve banks’ ability to serve the real economy, especially by reducing capital at risk for local government bonds and high-quality enterprises. The regulations will also help China’s banking sector better align with international standards such as the Basel III accord and promote continuous expansion and deepening of financial sector opening-up in China.
Under the new regulations, banks with a large asset size or relatively larger cross-border business activity are classified as Tier 1, and the capital regulatory measures for them will be in line with international standards. Tier 1 banks are required to disclose a complete set of reports. Banks with relatively smaller asset and cross-border business sizes are classified as Tier 2. They are subject to relatively simplified capital regulatory measures and disclosure requirements. Banks with assets of less than 10 billion yuan ($1.46 billion) each are classified as Tier 3. The CBIRC said it will further simplify capital measurements for Tier 3 banks and guide them to focus on serving the economy at the county level and small businesses.
Tao Xin, a partner at PwC China, advises banks to pay particular attention to asset categories and corresponding business types that may undergo significant changes under the new regulations, and to make necessary asset structure adjustments in advance. The more complex and detailed capital measurement rules under the new regulations also place higher demands on the quality of banks’ basic data.
In summary, the new regulations for the capital of commercial banks are expected to improve China’s banking sector’s risk management capabilities, promote financial stability, and better align the sector with international standards. Banks must take note of the changes and make necessary adjustments to remain compliant while also continuing to serve the real economy effectively.Regenerate response