November 21, 2014 / 7:20 AM / 3 years ago

China considering raising leverage ratio for banks

SHANGHAI, Nov 21 (Reuters) - China may raise the leverage ratio for its commercial banks, in a move to bring lenders in line with international capital adequacy standards, according to draft rules published by the banking regulator.

The China Banking Regulatory Commission (CBRC) began phasing in new higher capital adequacy requirements last year, in line with the Basel III standards, as Chinese policymakers aim to fortify banks against the risks from a slowing economy.

The leverage ratio is the broadest of capital requirements and a way to measure whether a company can meet its financial obligations.

If the ratio is raised, it may make it harder for banks to lend.

The CBRC is now seeking public feedback on draft rules around the proposed change in the accounting methods for certain off-balance-sheet items, including those relating to trade finance, bankers’ acceptances and letters of guarantee, to more accurately account for risk.

The rules also aim to improve the accounting methods for securities financing and derivatives and the transparency of leverage ratio reporting.

While the rules may increase the leverage ratio for banks, the large listed lenders are unlikely to be affected as they already have adequate capital reserves, said Tang Yayun, a banks analyst at Northeast Securities.

The draft rules did not provide enough detail on the new accounting methods to calculate the precise impact on the leverage ratios.

China relaxed the rules for calculating the amount of deposits that banks can re-lend as loans, an attempt hailed by some economists as the latest move to stimulate growth in its cooling economy. (Additional reporting by Koh Gui Qing; Editing by Kim Coghill)

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