Bloomberg News

China Proposes Rules to Help Banks Manage Short-Term Funding

October 12, 2011

Oct. 13 (Bloomberg) -- China plans to implement new rules from Jan. 1 to ensure banks have adequate short-term funding to cope with any potential shocks, the banking regulator said.

Lenders must ensure by the end of 2013 that easily sold “premium” assets can fully cover net cash outflows for 30 days in times of crisis, according to a draft regulation posted on the China Banking Regulatory Commission’s website yesterday.

China is seeking to prevent the nation’s banks from encountering the capital constraints faced by U.S. and European rivals during the global financial crisis. The regulator has been tightening oversight of banks and raising the reserve ratio to prevent the $3.8 trillion of credit extended since September 2008 from souring.

“Chinese banks’ credit quality will improve as they no longer need to lend as aggressively as they did during the credit boom,” Wilson Li, a Shenzhen-based analyst at Guotai Junan Securities Co., said by telephone today. “These rules requiring banks to have adequate short-term liquidity won’t trigger a new round of equity raising as banks can get the funding from the interbank market.”

The regulator may limit banks’ acquisitions or raise capital requirements if they fail to lower risk levels or fix problems with the funding system, according to the draft rules. The CBRC may also restrict foreign-invested banks’ asset-to- liability ratios in China and cross-border fund outflows.

Lenders also must meet, by the end of 2016, a minimum 100 percent net stable funding ratio, which measures the adequacy of funds that can be relied on for at least one year under stress conditions, the regulator said.

Banks should submit stress-test reports on a quarterly basis, according to the proposed rules. The CBRC is collecting feedback on the recommendations until Nov. 12.

--Dingmin Zhang, Stephanie Tong. Editor: Chitra Somayaji

To contact Bloomberg News staff for this story: Dingmin Zhang in Beijing at dzhang14@bloomberg.net; Stephanie Tong in Hong Kong at stong17@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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