Chinese banks are urged to focus on raising capital than taking on more risks.
The China Banking Regulatory Commission is calling on Chinese banks to raise their capital even as they take on more risks to boost their bottom lines. CBRC said banks are increasingly taking on new risks while their current structure can no longer support this kind of business expansion.
Analysts said a major concern is that banks have been channeling customer funds into wealth management products that pay higher returns than traditional deposits. This and other risky behaviors might undo China’s attempts to bolster the balance sheets of its banks in accordance with the Basel III regime.
CBRC denies that new capital requirements under the Basel III are too harsh for Chinese banks. As part of its adherence to Basel III, China released a series of draft rules late last year that called for China's systemically important banks to have capital adequacy ratios of at least 11.5% and core capital adequacy ratios of 9.5% by 2013.
That compares to requirements under Basel II for capital adequacy ratios of 8% and core capital adequacy ratios of 4%. Most large Chinese banks already meet the 9.5% core capital requirement under Basel III.
Chinese media, however, has been regularly reporting rumors that the CBRC would delay the implementation of the Basel III rules.
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