RETAIL BANKING | Staff Reporter, China

Basel III will have to wait

China will delay the implementation of tough new bank rules until next year.

The postponement confirms Beijing’s perception that a rush to enforce the regulations would choke lending and impair its cooling economy. The new capital standards would have placed China under the global Basel III regime at the start of 2012.

Under Basel III, Chinese banks deemed to be systemically important will be required to meet capital adequacy ratios of 11.5% while other banks will be held to a 10.5% minimum. Most Chinese banks already meet the Basel standards after a round of equity increases over the past two years.

By moving the start date to January 1, 2013, Beijing confirmed that those original plans were too ambitious. The new timeline brings China in line with other countries.

“We will implement a reasonable transition period for the capital adequacy standards, ensuring that lending growth will continue at an appropriate pace,” said Premier Wen Jiabao.

He also said the government would give banks a special dispensation on lending to small and medium-sized companies that generate about two-thirds of Chinese growth but have been traditionally starved of credit. The government will lower the risk weighting assigned to SME loans in calculating banks’ capital ratios to encourage more such lending.

Of even greater concern to the government has been the slowdown in lending in recent months. Banks lent US107 billion in April, well below market expectations. Lending at the start of May was also reported to be weak.

The supply of credit through the banking system is one of the government’s main tools for growing the economy. Lending, however, fell this year because of weak loan demand and also because banks have been extremely wary of accumulating bad debts.

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