China to list 10 commercial banks as D-SIBS

The ‘big’ four banks are likely to fall one rank below being identified as most systemically important.

China will likely list at least 10 commercial banks as domestic systemically important banks (D-SIBS) out of 30 bank candidates, based on the China Banking Regulatory Commission’s draft consultations, reported Fitch Ratings.

Of these banks, China’s 'big four' financial institutions are likely to fall under Bucket 3, or one bucket below being identified as “most systemically important.” Meanwhile, the Bank of Communications (BOCOM) is likely to fall into Bucket 2.

“The 'big four' are already designated as global systemically important banks (G-SIBs), and have capital surcharges of 1% to 1.5% based on the latest G-SIB list as of November 2019. BOCOM is also likely to become a G-SIB over the next year or two, given the steady increase in its size,” noted Fitch Ratings.

Five mid-tier banks are estimated to be listed as D-SIBs: Industrial Bank, China Merchants Bank, Shanghai Pudong Development Bank, China CITIC Bank, and China Minsheng Banking Corporation (CMBC). Meanwhile, the possible D-SIB scores of the Postal Savings Bank of China and China Development Bank are hard to estimate due to “shortage of detailed information,” according to Fitch.

Non-D-SIB banks may still receive varying levels of state support.

It is also yet unclear if authorities will introduce different capital surcharges for D-SIBs beyond the 1% core capital surcharge for D-SIBs currently in place, based on the bucket into which they fall, noted Fitch.

“Such a change could lead to more stringent regulatory requirements for D-SIBs. This would be in line with the government's overarching agenda of broadening and strengthening regulatory supervision across the financial sector,” the report added.