Beijing boosts banks’ capital adequacy testing ahead of Basel III implementation
ICBC, CCB, ABC, BoC, BOCOM and China Merchants Bank given permission to establish individual capital assessment models to measure asset strength and prepare for Basel III rules. December 06, 2012 | Baron LaudermilkChina Securities Journal recently reported that six major Chinese banks, comprising Industrial & Commercial Bank of China, China Construction of Bank, Agricultural Bank of China, Bank of China, Bank of Communications, and China Merchants Bank, will be allowed to establish individual capital assessment models to measure asset strength. This has occurred as People’s Bank of China continues to pass on more autonomy to banks to assess their capital strength, with implementation of Basel III standards due in 2013. If recent reports are anything to go by, the six banks are expected to see their capital adequacy ratios jump from 40 to 50 basis points following PBoC’s latest move. That said, PBoC will also use Basel III standards to measure banks’ capital adequacy, parallel to banks’ individual capital assessment models, as China moves ahead with Basel III implementation in January 2013. The ratios come from the two measurements of capital adequacy and are not supposed to vary more than 5% in the first year of implementation. Implementation of banks’ individual capital measurement models will largely be seen as an exercise in pushing banks to improve their risk assessment and asset evaluation. However, these models may underestimate credit risks as the parameters are derived from banks’ credit history over a period of ten years, with Chinese banks having enjoyed a relatively solid asset quality over that time period. From 2013 onwards, PBoC will require systemically important banks to reach an 11% minimum capital adequacy ratio, and 10.5% for the rest. PBoC’s latest move appears to be another step taken towards the direction of liberalising China’s banking system in an effort to gradually revolutionise the country’s financial industry. Indeed, this can be seen from the regulator’s attempts to enable major banks to more effectively gauge their strengths and weaknesses in regards to capital adequacy. This will undoubtedly... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Capital & Strategic Issues, China, Credit Risk, Regulation, Risk and RegulationCapital & Strategic Issues,China,Credit Risk,riskregulation,Risk and Regulation, Capital & Strategic Issues,China,Credit Risk,Regulation,Risk and Regulation, Keywords:PBoC, ICBC, CCB, ABC, BoC, BOCOM, China Merchants Bank PBoC, ICBC, CCB, ABC, BoC, BOCOM, China Merchants Bank
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