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Lenders 'must meet capital standards'

(China Daily)

11:18, December 08, 2012

New financial tools may help banks adapt to tougher rules effective 2013

China's banking regulator on Friday released guidelines to encourage banks to develop new financial instruments to supplement capital levels in preparation for tougher rules effective next year.

Commercial lenders could issue new debt and equity capital instruments when conditions are mature, the China Banking Regulatory Commission said in a statement published on its website.

When the Tier 1 core capital adequacy ratio declines to 5.125 percent or lower, banks could write down principal of the capital instruments, and transform convertible bonds into stocks to get their ratios back to the qualified level, according to the statement.

"The guidelines would improve banks' capability to absorb capital loss on the instruments, and help stabilize the banking system," it said, adding that it is also aiming to encourage banks' innovation in developing capital instruments to help them replenish capital.

It highlighted in the statement that banks should still mainly rely on capital supplement through their own profits, while exploring the new instruments.

In a separate statement, it said that major banks must have a minimum capital adequacy ratio of 9.5 percent by the end of 2013, and 11.5 percent by the end of 2018.

Meanwhile, it said that smaller banks need to have a ratio of 8.5 percent by the end of 2013, and 10.5 percent by the end of 2018.

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