Chinese financial authorities are setting up a new system to regulate commercial bank capital based on lenders’ total assets and overseas business, in a bid to increase compliance with international standards while helping smaller banks flourish.
The China Banking and Insurance Regulatory Commission (CBIRC) and the central bank published a draft of the new framework on Saturday and are now taking public feedback. The draft includes amendments to the current rules that have been in effect for 10 years.
The amendments would help align China’s banking regulations with those set by the Basel Committee on Banking Supervision (BCBS), according to a Q&A with the regulators.
The BCBS has issued a series of requirements in the Basel III rules and will evaluate member countries, including China, to see if their domestic regulations align with the global standards.
Under China’s draft rules, commercial banks would be put into three categories based on the size of their assets and offshore claims and liabilities. Larger banks with more overseas operations would be held to international standards, whereas lenders with less than 10 billion yuan ($1.5 billion) in assets and no offshore claims or liabilities would be subject to less complicated rules, according to the Q&A.
The stepped regulatory system wouldn’t lower requirements on bank capital but would allow small and midsize lenders to play a more active role in the financial sector, the regulators said.
The draft rules would strengthen the capital supervision of large banks, promote the stability of the banking industry, while reducing the compliance cost of small and midsize banks and guiding them to focus on serving local customers and small businesses, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co. Ltd.
The new framework would also include adjusted risk evaluation metrics for bank assets and a differentiated information disclosure system that covers an array of risk information for lenders across the three categories.
The CBIRC and the People’s Bank of China said they estimate that the changes won’t cause large fluctuations in the amount of capital in the banking sector.
The system would come into effect on Jan. 1 next year, giving banks time to prepare while keeping China in step with other members of the Basel committee, the regulators said.
Contact reporter Zhang Yukun (yukunzhang@caixin.com) and editor Jonathan Breen (jonathanbreen@caixin.com)
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