China's banking watchdog has tightened capital requirements for banks amid concerns rampant lending will lead to a sharp rise in bad debts, state media reported Friday.
Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission, said the minimum capital adequacy ratio for large banks (CAR, the amount of capital banks must hold against their risk) has been raised to 11%.
The CAR was previously set at a minimum of 8%. The move was in response to the "changing macroeconomic situation," Wang wrote in the latest edition of the central bank-backed China Finance magazine. Wang did not say when the new rules came into effect.
"The intention is to ask banks to convert more earnings into capital and provisions ... to withstand potential risks in the future," Wang said. The regulator has told small- and medium-sized lenders to maintain a CAR of at least 10%, he said.
The watchdog last month issued a rare warning that it will impose curbs on banks unless they strengthen their defences against bad loans as Beijing tries to put the brakes on record lending.
Those that fail to comply will face "restrictions on market access, overseas investment, and outlets and business expansion," the regulator warned.
New bank loans reached 7.4 trillion yuan (1.1 trillion dollars) in the first half of the year, hitting a record 1.89 trillion yuan in March, as banks heeded Beijing's calls to pump money into the world's third largest economy.
The figure declined significantly to 355.9 billion yuan in July before rebounding in August and September amid concerns that much of the money had been funnelled into stocks and property at the risk of spiking asset prices.
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