China Dilutes Capital Rules

There are signs that China is about to dilute its tough new capital regulations on banks.

Initially China was poised to introduce capital adequacy regulations that were tougher than those contained in Basel 3.

The following signs indicate that the opposite may be true:-

·      Central Huijin, a central government agency that holds stakes in key banks, has allowed these banks to pay lower dividends and to bolster their capital reserves as a result;

·      The China Banking and Regulatory Commission has delayed the formal implementation of the new regulations by six months to July;

·      Loans in default will be risk-weighted at 100 per cent instead of 150 per cent as originally planned;

·      Maturities in loans to local governments will be extended.