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China’s ‘enhanced regulation’ on banks sees capital buffer increased amid greater risk exposure
- Total of 19 banks will be subject to stricter regulatory requirements as of December 1 – a move that analysts say is in line with market expectations
- Decision by regulators comes as the nation faces a rise in bad loans that is coinciding with a national economic slowdown
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Frank Tangin Beijing
China is ramping up efforts to protect the state-controlled financial system by issuing its first list of too-big-to-fail banks – a move that comes amid a rise in bad loans that coincides with a national economic slowdown.
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Those 19 banks – dubbed domestic systemically important banks (D-SIBs) – will be required to increase their capital requirement by 0.25 to 1 percentage points. These stricter rules will strengthen those banks’ risk resistance while helping maintain financial stability, analysts said.
Mid- to lower-tier banks will face the biggest policy changes, having to add additional capital-requirement buffers that were usually concerns for bigger banks, as the central bank has stepped up its scrutiny of Chinese lending institutions.
“It’s a sign of enhanced regulation,” said Ding Shuang, chief Greater China economist with Standard Chartered Bank. And it will pave the way for banks to tackle their specific problems, he added.
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The new regulation, which takes effect on December 1, comes amid growing concerns that property curbs and financial risks could spread across markets, and as property developer Evergrande is reeling from a massive debt crisis.
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