Daily Management Review

China Improves Commercial Banks' Capital And Risk Management


China Improves Commercial Banks' Capital And Risk Management
To better prevent risks in the nation's financial system, China's banking regulator and central bank intend to implement a more differentiated regulatory system for evaluating commercial banks' capital adequacy and risk management.
On Saturday, the People's Bank of China and the China Banking and Insurance Regulatory Commission jointly released revised draft regulations that they claimed were aimed at assisting banks in "continually improving the precision of risk measurement and guiding banks to better serve the real economy."
The proposed regulations will categorize lenders into three groups based on the size and risk of their businesses, bringing the banking industry closer to international standards.
Banks will be subject to a differentiated regulatory system under the rules. Lenders will be subject to stricter capital requirements and be required to provide more information to regulators if their asset portfolios or cross-border business operations are relatively large.
In addition, more precise criteria, such as property types, sources of repayment, and loan-to-value ratios, will be included in the rules to assess banks' risk exposure to mortgage lending.
The Chinese real estate market, which was once a major driver of growth, has been severely slowed over the past year by shaky consumer demand and rising developer debt defaults.
The capital adequacy ratios in the banking industry would largely remain unchanged after the implementation of the new regulations, according to the two regulators, though the ratios for some banks would change slightly.
Prior to making the changes effective on January 1, 2024, the commission and central bank are seeking feedback from the public.