Capital rules put pressure on banks
Small mainland lenders under pressure to raise capital levels ahead of tough new requirements
Small lenders on the mainland are under pressure to boost their capital to meet strict capital adequacy rules which will take effect from January as scheduled, despite a delay in the United States.
China's lenders will be required to comply with tougher global bank capital rules, known as Basel III, from next year, although the US banking regulator has decided to delay implementation because of a wide range of industry views, the reported yesterday.
Most Chinese lenders already exceed the Basel III capital requirements, which require systemically important banks to have capital adequacy ratios of 11.5 per cent, and other banks 10.5 per cent. But some are only marginally above the levels.
Smaller lenders like city commercial banks face higher capital pressure than larger lenders, said Chen Xingyu, an analyst with Phillip Securities in Shanghai.
"Raising funds through initial public offerings could be a channel for smaller banks to boost capital, but China's regulators are reluctant about approving their offerings due to recent weakness in the A-share markets," he said.
Some city commercial banks, such as Bank of Shanghai, China Guangfa Bank, Longjiang Bank, and Harbin Bank, are seeking to raise funds through a Hong Kong listing. Chen said these banks would eventually be able to meet the capital ratio with government funding and by boosting capital through bond issuance.
