China’s Big Banks to Tighten Capital Reserves

Chinese banks will be required to increase their capital reserves, reduce their leverage ratio and file group-level recovery plans and disposal plan proposals under changes to banking regulations targeting the systemically important banks. A total of 19 major banks including the Industrial and Commercial Bank of China, China Construction Bank, the Agricultural Bank of China and the Bank of China will be required to preserve extra capital of between 0.25 to 1 percentage points and correspondingly reduce their leverage ratio. 

Under the rules that take effect on 1 December 2021, the banks will be required to formulate group-level recovery plans and disposal plan proposals and submit them to the central bank, the People’s Bank of China (PBO), crisis management group for review. Further banks will need to provide further details on risk reporting and disclosure, risk data summation and corporate governance requirements. The changes come amid a rise in bad loans, uncertain economic recovery, and a drop in property loans, according to the China Banking and Regulatory Commission earlier this year. 

At the same time, the PBOC and the China Banking and Insurance Regulatory Commission issued a list of what they consider to be domestic systemically important banks. 

The 19 banks are divided into five groups in descending order of systemic importance score: 

* there are eight banks in the first group, including Ping An Bank, China Everbright Bank, Huaxia Bank, Guangfa Bank, Bank of Ningbo, Bank of Shanghai, Bank of Jiangsu and Bank of Beijing; 

*  four in the second group, including Pudong Development Bank, CITIC Bank, China Minsheng Bank and Postal Savings Bank of China; 

* three in the third group, including Bank of Communications, China Merchants Bank and Industrial Bank; 

* and four in the fourth group, including Industrial and Commercial Bank of China, Bank of China, China Construction Bank, Agricultural Bank of China; there is no bank in the fifth group.