China sets capital adequacy ratio targets for banks

A man checks his mobile phone as he walks past the head office of Bank of China in Beijing October 25, 2012.

BEIJING (Reuters) - China's banking regulator set a minimum capital adequacy ratio for its top banks of 9.5 percent by the end of 2013, the first step towards meeting its goal of 11.5 percent by the end of 2018 as it looks to implement new Basel III capital guidelines.

For smaller banks, the minimum capital adequacy ratio must reach 8.5 percent by the end of next year, the China Banking Regulatory Commission said in a statement on its website, www.cbrc.gov.cn On Friday.

China delayed in June the enforcement of tougher capital requirements for its banks to 2013 from 2012 to avoid squeezing credit conditions and dragging further on already slackening economic growth.

The regulator had also provided a six-year grace period for Chinese lenders to implement its new capital rules, which require banks of "systemic importance" to have a minimum capital adequacy ratio of 11.5 percent, while smaller banks have a ratio of 10.5 percent.

"This circular gives a clear guidance for commercial banks to draw up their capital replenishment plans and will help alleviate the pressure to meet the target in the grace period," said the statement.

The CBRC also said all banks must set reserve capital ratios at 0.5 percent or above by the end of 2013 and raise the level by 0.4 percentage points each year from 2014 to 2018 to reach the final target of 2.5 percent.

Most Chinese banks have a relatively strong and steady capital base compared with their western counterparts. Official data showed that the weighted average capital adequacy ratio in China's banking system was 13 percent at the end of the third quarter, up from 12.9 percent at the end of June.

In general, a higher capital adequacy ratio is seen as good for the financial system as lenders have more cash to cover the cost of unforeseen risks, benefiting depositors. The downside for investors is that a high ratio can crimp profitability.

The new capital requirements are part of China's efforts to implement Basel III guidelines, brought in globally after the 2008/09 financial crisis highlighted the need for banks to be more resilient against credit stresses.

The Basel III rules require banks to hold a total of 7 percent in top quality capital, some way below what China is telling its big banks should be a minimum capital adequacy ratio.

(Reporting by Aileen Wang; editing by Jonathan Standing and Simon Cameron-Moore)