China Banks Are Asked To Raise Capital Adequacy Ratios26 April, 2011, 11:15. Posted by Zarathustra
Tags: Banks, Financials
Update: The China Banking Regulatory Commission has denied the report that the capital requirement will be raised according to Reuters
Bloomberg reported that the China Banking Regulatory Commission (CBRC) will ask the 5 biggest banks, including Industrial and Commercial Bank of China (ICBC), Bank of China (BOC), China Construction Bank (CCB) and Agricultural Bank of China (ABC), to raise the capital requirement above their minimum level of 11.5% to ensure they have enough capital to cushion the credit losses. The sources said the Industrial and Commercial Bank of China was asked to have the capital adequacy ratio of 11.8%.
Reuters obtained a document that the banking regulator would like to raise the banks’ capital adequacy to 14%, although the CBRC denied it. According to Bloomberg’s compilation, the capital ratio for ICBC was 12.27%, BOC’s was 12.58%, CCB’s was 12.68%, and ABC’s was 11.59%, and Bank of Communication’s ratio was 12.36% at the end of last year.
The Chinese authorities are very much aware of the risks in the China’s economy. Recently banks were ordered to perform another around of stress test, with the most severe case scenario included 50% drops in home prices. The increase of capital requirement will be another pre-emptive step to prevent a banking crisis or something. Because of the increase in capital requirement, do prepare yourself for another round of capital raising exercises by these banks.