July 14, 2020 / 9:28 AM / a month ago

Encouraged by regulators, China banks request easing of capital adequacy rule - sources

BEIJING (Reuters) - Two lenders in eastern China have asked the central bank to relax the way in which it assesses capital adequacy, people with direct knowledge of the matter said on Tuesday, adding that the central bank and local regulators had encouraged the move.

FILE PHOTO: People wearing face masks walk past a bank in Beijing , April 4, 2020. REUTERS/Tingshu Wang/File Photo

The lowering of one indicator of capital health would free up funds at small and mid-sized banks for loans to support the economy amid the coronavirus crisis, the two sources said.

“The lower it is, the easier it is for us to meet the regulatory requirement for capital adequacy,” one of the people said.

The person also said the central bank is expected to grant the request as soon as this month.

The people were not authorised to speak on the matter and declined to be identified. The People’s Bank of China did not immediately respond to a Reuters request for comment.

It was not clear to what extent requirements for the indicator of capital health would be lowered and how many other banks were taking similar steps.

China’s central government has called on financial institutions to sacrifice 1.5 trillion yuan ($214 billion) in profits this year to help counter the economic impact of the new coronavirus on domestic companies. Measures taken so far have included increased lending, lower interest rates and cuts to fees.

Beijing has also allowed local governments to use the proceeds of special bonds to replenish the capital of some small banks.

But China’s Banking and Insurance Regulatory Commission has also warned that the country’s banking sector should brace for a big jump in bad loans due to coronavirus-induced economic pain, noting the deterioration of asset quality at some small and mid-sized financial institutions was accelerating.

($1 = 7.0090 Chinese yuan)

Reporting by Xiangming Hou and Ryan Woo; Additional reporting by Rong Ma; Writing by Cheng Leng; Editing by Edwina Gibbs

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