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China will play by its own rules on bank cap needs
Beijing, Aug 16: China will introduce its own rules on bank capital requirements instead of adopting the new, strict Basel accord, state media said on Friday.
Beijing, Aug 16: China will introduce its own rules on bank capital requirements instead of adopting the new, strict Basel accord, state media said on Friday.
But ‘Basel II’ has added impetus to China’s drive to reform the dominant state banks, saddled with piles of bad loans after decades of reckless lending to loss-making state firms, analysts said. The Basel Committee on Banking Supervision, the global rule-setting body of central bankers and financial regulators, is drawing up an accord that will keep the minimum capital requirement for banks at 8%, a level many debt-ridden Chinese banks are still unable to reach.
The China Banking Regulatory Commission, set up earlier this year to take over supervisory power from the central People’s Bank of China, would issue the nation’s first rules on capital-adequacy ratios later this year, the Financial News said. “The regulations will retain an 8% minimum capital-adequacy ratio requirement but will also include requirements for supervision and information disclosure, two elements in the new accord,” the official China Daily said.
The accord is to replace the ’88 Basel pact, which many in the financial world say is hopelessly outdated. Some bankers estimate the Basel rules could lead to the capital charge — the minimum capital that banks are obliged to hold — rising by up to 60%, making the profitability of some activities significantly less attractive. “China will continue to implement the old ’88 accord at least for a few years after the G-10 starts implementing the new capital accord in ’06,” the Financial News quoted a spokesman at the China Banking Regulatory Commission as saying.
The move was based on reality, he said. Wang Songqi, vice-director of the financial research centre at the Chinese Academy of Sciences, a top government think tank, said the China move was a step forward. “This will help put more pressure on banks to increase their capital-adequacy ratios...The biggest problems in the sector are with state banks.”
Bureau Report
The China Banking Regulatory Commission, set up earlier this year to take over supervisory power from the central People’s Bank of China, would issue the nation’s first rules on capital-adequacy ratios later this year, the Financial News said. “The regulations will retain an 8% minimum capital-adequacy ratio requirement but will also include requirements for supervision and information disclosure, two elements in the new accord,” the official China Daily said.
The accord is to replace the ’88 Basel pact, which many in the financial world say is hopelessly outdated. Some bankers estimate the Basel rules could lead to the capital charge — the minimum capital that banks are obliged to hold — rising by up to 60%, making the profitability of some activities significantly less attractive. “China will continue to implement the old ’88 accord at least for a few years after the G-10 starts implementing the new capital accord in ’06,” the Financial News quoted a spokesman at the China Banking Regulatory Commission as saying.
The move was based on reality, he said. Wang Songqi, vice-director of the financial research centre at the Chinese Academy of Sciences, a top government think tank, said the China move was a step forward. “This will help put more pressure on banks to increase their capital-adequacy ratios...The biggest problems in the sector are with state banks.”
Bureau Report