Nov 15 (The following statement was released by the rating agency)
Industrial and Commercial Bank of China's (ICBC) addition to the annual list of global systemically important banks (G-SIBs) highlights the growing importance of Asia to the global financial system, Fitch Ratings says. With ongoing strategies to expand overseas and moves to internationalise the Chinese yuan, Asian banks could increase their presence on the G-SIB list. We believe the 29 G-SIBs are well positioned to meet planned additional capital requirements.
The number of Asian-focused institutions has increased since the initial 2011 G-SIB list, which included five banks with substantial presence in the region, including HSBC. This has risen to seven, with Standard Chartered joining the group last year and ICBC this year. ICBC has actively increased its international reach since 2008, largely to support the global presence of its Chinese corporate clients.
Being included in the annual list means that banks will be subject to greater scrutiny for risk management, data, governance and controls. This is likely to be the more challenging aspects of the G-SIB designation for the new comer. The imposition of a 1% capital buffer on top of the 7% minimum required under Basel III should be manageable since it already meets a higher threshold set by the Chinese regulator.
We believe most G-SIBs will target capitalisation in line with peers', even if they are subject to different capital requirements, so the moves of banks to lower "buckets" are unlikely to change their capital plans. Many banks have strengthened their capital substantially over the past year, and we believe the globally active trading and universal banks will maintain CET1 ratios of at least 9%-10%. Management are likely to target some buffer above this minimum to maintain flexibility. Regulators could add further buffers to minimum requirements, such as countercyclical buffers.
Deutsche Bank and Citigroup moved down to a 2% capital buffer, and Bank of New York Mellon down to 1%. The changes to the G-SIB group reflect data quality improvements, change in methodology and changes in underlying systemic importance. Credit Agricole was raised to 1.5% bucket, in between its French peers - BNP Paribas at 2% and Societe General and Groupe BPCE at 1%. Credit Agricole is well placed to meet the higher requirement having reported a 10.5% fully-loaded Basel III CET1 ratio at end-3Q13.
G-SIB buffers will be phased in from January 2016, with full implementation by January 2019. The banks affected by the initial phase-in will be those included in the G-SIB list in November 2014, so the current list is only provisional.