The China Banking Regulatory Commission (the "CBRC")
issued Guiding Opinions of the China Banking Regulatory Commission
on the Implementation of the New Regulatory Standards by the
Chinese Banking Industry (Yin Jian Fa  No. 44) (the
"Guiding Opinion") on April 27, 2011, which clearly
creates new rules for liquidity and capital held by banks in
accordance with the "Basel Accord III" ("Basel
III"), and on the basis of comprehensively assessing the
effectiveness of the current prudent regulatory system, to improve
the capital adequacy ratio, leverage ratio, liquidity, loan loss
reserve and other regulatory standards. The four new regulatory
standards for capital listed above will be implemented on January
According to the Guiding Opinion, the CBRC continuously
published Administrative Measures for Leverage Ratio of Commercial
Banks (June 1), Administrative Measures for Loan Loss Provisions of
Commercial Banks (July 27), then Administrative Measures on
Commercial Banking Capital (Draft for comments) (August 12) and
Administrative Measures on Commercial Banking Liquidity Risk
(tentative) (Draft for comments) (October 12), to solicit public
opinions. The four above administrative measures all provide for
implementation from January 1, 2012.
The new regulatory standards are stricter than Basel III with
respect to key regulatory indicators. The CBRC requires the tier 1
capital adequacy ratio to be not less than 5%, higher than Basel
III's requirement of 4.5%, which is the international standard.
The CBRC requires commercial banking leverage ratios to be not less
than 4%, higher than the 3% that is the international standard.
With respect to requirements for loan loss reserves, the CBRC
requires a new indicator of the "loan provision ratio"
(the ratio of loan loss reserves to outstanding loans shall not be
less than 2.5%), which places a great deal of pressure on many
small and medium-sized banks.
According to the International Finance News this week, among the
above four new regulatory standards, the CBRC may postpone
implementation of the capital adequacy ratio, loan loss reserve and
liquidity indicators, while the leverage ratio will be still
implemented as planned. News of the decision was welcomed by the
banking industry. Although this action can not be regarded as
loosening the restrictions of regulatory policy, it provides
adequate preparation for regulatory authorities, commercial banks
and capital markets, which helps the successful implementation and
smooth transition of the new regulatory policies. As to the extent
of influence on the credit supply capacity of the banking system as
well as on the macro economy, only time will tell. (Written
by Su Meng)
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