China's banking regulator and the central bank plan to adopt a more differentiated regulatory system to assess commercial banks' capital adequacy and risk management. This step aims better to prevent risks in the country's financial system.
New Rules to Guide Banks to Serve Real Economy
The China Banking and Insurance Regulatory Commission and the People's Bank of China jointly released amended draft rules that aim to help banks continuously improve the precision of risk measurement and guide them to serve the real economy better.
Banking Sector Brings Closer to Global Standards
The draft rules bring the banking sector closer to global standards by dividing lenders into three groups based on a business scale and risk level. The rules will apply a differentiated regulatory system to banks, with lenders with a relatively large scale of assets or cross-border business facing stricter capital requirements and having to disclose more information to regulators.
Risk Exposure to Mortgage Lending Measured
The rules will also include more specific factors to measure banks' risk exposure to mortgage lending, such as property types, sources of repayments, and loan-to-value ratios.
China's Property Market Slows Sharply
Once a pillar of growth, China's property market has slowed sharply over the past year due to fragile demand and mounting debt defaults by developers.
Capital Adequacy Ratios in Banking Sector Remain Unchanged
The two regulators stated that implementation of the new rules would leave capital adequacy ratios in the banking sector generally unchanged, with ratios for some banks changing slightly.