February 21, 2023: China’s banking regulator and the central bank are planning to adopt a more differentiated regulatory system for getting commercial banks’ capital adequacy and threat control a step better to prevent risks in the nation’s financial system.
On Saturday, the China Banking and Insurance Regulatory Commission and the People’s Bank of China released amended draft rules to help banks “continuously the accuracy of risk measurement and guide banks to serve the real economy better.”
The draft rules, bringing the banking sector near to international standards, will separate lenders into three groups based on a firm scale and risk level.
The rules apply a differentiated regulatory system to banks. Lenders with a large scale of assets or huge cross-border business will be under stricter capital needed and will have to reveal more information to regulators.
Therefore, the rules include more specific factors to measure banks’ threat exposure to lend the mortgage, like property types, sources of refunds and loan-to-value ratios.
Once a pillar of growth, China’s property market has slowed sharply over the previous year, hobbled by weak demand and mounting debt defaults by developers.
The two regulators stated that implementing the recent rules would keep the banking sector’s capital adequacy ratios unchanged, though a few banks’ percentages would change slightly.
The commission and central bank looked for public comment before executing the changes on January 1, 2024.