China Said to Consider 15% Capital Ratio for Biggest Lenders
China Said to Consider 15% Capital Ratio for Banks
Nelson Ching/Bloomberg
ICBC, the world’s largest bank by market value, slipped 0.3 percent in Hong Kong trading today.
ICBC, the world’s largest bank by market value, slipped 0.3 percent in Hong Kong trading today. Photographer: Nelson Ching/Bloomberg
China’s banking regulator may require the nation’s biggest lenders to boost their capital adequacy ratios to as high as 15 percent by the end of 2012, a person with knowledge of the matter said.
The regulator is drafting a plan that would call for Tier 1 capital of 8 percent, with the overall ratio set at 10 percent, the person said. The plan would add a buffer of up to 4 percent to protect against economic fluctuations, plus a further 1 percent for “systemically important” banks, the person said. The biggest banks must currently meet an 11.5 percent ratio.
China’s rules would be stricter than capital requirements announced Sept. 12 by the Basel Committee on Banking Supervision in response to the global financial crisis. The country has moved to rein in risk-taking among banks this year after last year’s record $1.4 trillion of new loans fanned concerns about the financial system’s ability to withstand future stress.
“This is quite onerous and I’m surprised they are going this far,” said Michael Werner, a Hong Kong-based analyst at Sanford C. Bernstein & Co. “Given the risks, maybe they feel they’d rather be erring on the conservative side.”
The China Banking Regulatory Commission’s plan would require lenders to have common equity equal to at least 6 percent of risk-weighted assets, the person said, declining to be identified as no announcement has been made.
Fundraising
A CBRC press official, who declined to be identified, citing agency policy, wasn’t immediately able to comment. Spokespeople at Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. -- the country’s four largest lenders -- either declined to comment or weren’t available.
ICBC, the world’s largest bank by market value, slipped 0.3 percent in Hong Kong trading yesterday. Bank of China fell 1 percent and Construction Bank declined 0.3 percent.
Chinese lenders have announced plans to raise more than a combined $84 billion from equity sales since the beginning of 2010. The biggest banks are currently subject to a minimum capital adequacy ratio of 11.5 percent, while the requirement for other publicly traded lenders is 10 percent or more.
Domestic lenders had an average capital adequacy ratio of 11 percent as of June 30, with the Tier 1 ratio standing at 9 percent, according to the CBRC.
Capital Shortage
Should the CBRC impose the full 4 percent of additional capital for economic swings, banks would likely be forced into another round of fundraising, said Li Shanshan, a Beijing-based analyst at BoCom International Ltd.
“Even a two percent increase could mean a few hundred billion yuan” of capital shortage, Li said.
The new Basel rules require banks to have a 4.5 percent common equity within five years, and to add an additional 2.5 percent buffer by Jan. 1, 2019. The Tier 1 capital requirement was set at 6 percent. Tier 1 capital, whose definition has been narrowed by the Basel committee, includes common equity and perpetual preferred stock.
Banks are currently required to have common equity equal to 2 percent of total assets and 4 percent Tier 1 capital.
Chinese “systemically important” banks also need to maintain loan-loss reserves equivalent to at least 2.5 percent of total lending by 2012, while other banks should comply by 2016, according to the person.
“There will be more capital raising as a result, especially for large banks as their deadline is short,” said Dariusz Kowalczyk, Hong Kong-based chief economist at Credit Agricole CIB. “Their lending capacity will be constrained, which will slow GDP growth and limit upside” for the yuan.
China’s gross domestic product expanded 10.3 percent from a year earlier in the second quarter, slowing from an 11.9 percent gain in the first three months. Growth may ease to 8.9 percent in 2011, according to forecasts compiled by Bloomberg.
--Luo Jun, Zhang Dingmin. Editor: Philip Lagerkranser, Mark McCord.
To contact Bloomberg News staff on this story: Luo Jun in Shanghai at +8621-6104-7021 or jluo6@bloomberg.net
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