China refines capital and risk management of commercial banks

China’s banking regulator and the central bank plan to adopt a more differentiated regulatory system for assessing commercial banks’ capital adequacy and risk management, in a step to better prevent risks in the country’s financial system.

The China Banking and Insurance Regulatory Commission and the People’s Bank of China on Saturday jointly released amended draft rules that they said aimed to help banks “continuously improve the precision of risk measurement and guide banks to better serve the real economy.”

The draft rules, which bring the banking sector closer to global standards, will divide lenders into three groups based on business scale and risk level.

The rules will apply a differentiated regulatory system to banks. Lenders with a relatively large scale of assets or relatively large cross-border business will be under stricter capital requirements and will have to disclose more information to regulators.

In addition, the rules will include more specific factors to measure banks’ risk exposure to mortgage lending, such as the types of property, sources of repayments and loan-to-value ratios.

China’s property market, once a pillar of growth, has slowed sharply over the past year, hobbled by fragile demand and mounting debt defaults by developers.

The two regulators said implementation of the new rules would leave capital adequacy ratios in the banking sector generally unchanged, though the ratios for some banks would change slightly.

The commission and central bank are seeking public comment before implementing the changes on Jan. 1, 2024.