A counter for deposit and insurance at a bank in Zhengzhou, Central China's Henan Province File photo: VCG

China's central bank and top banking regulator on Saturday released a new plan for differentiated regulations for banks of different sizes and risk exposures, aiming to help banks bolster their capital and risk management.

Experts said the move could help commercial banks improve their risk measurement and application, enhance the ability of commercial banks to tackle risks, and improve the stability of China's financial system.

The China Banking and Insurance Regulatory Commission (CBIRC) and the People's Bank of China, the central bank, revised regulations and put forward a draft plan to further improve the capital regulation rules for commercial banks. 

Regulators want to encourage banks to enhance risk management, and improve the quality and efficiency of banks in serving the real economy.

Regulators may establish differentiated capital supervision systems, so that supervision can match the size of banks' assets and the complexity of their businesses. Such a move would also reduce the compliance costs of small and medium-sized banks, according to a note published on the CBIRC's website.

Under the plan, commercial banks will be divided into three groups according to their business scales and risk differences, and matched with different capital supervision programs. The new regulations are scheduled to be officially implemented on January 1, 2024.

Large banks or those with more cross-border business will be classified into the first tier and their capital will be calculated under international standards. Banks with relatively small assets and cross-border operations will be placed in the second tier and supervised under relatively simpler rules, read the note.

The third tier, mainly commercial banks, with capital of less than 10 billion yuan ($1.46 billion), will be subject to further simplified capital supervision rules, and they will be encouraged to focus on serving counties and small and micro-sized businesses.

The plan has drawn on the regulatory experience of developed economies such as the US and Europe, and it proposes matching different capital regulation programs with different tiers of banks, which will greatly improve the relevance and matching between regulatory supervision and the actual situation of banks, Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co, told the Global Times on Sunday.

There are more than 4,000 banking institutions in China, and their business scales and risk characteristics vary widely, according to Dong.

This move "strengthens the capital supervision of large and medium-sized banks and appropriately reduces the compliance costs of small and medium-sized banks, attracting them to focus on serving small and micro-sized enterprises," Dong said.

Differentiated regulations will not lower capital requirements. On the premise of maintaining the overall soundness of the banking industry, it is expected to stimulate the financial vitality of small and medium-sized banks and reduce their compliance costs, officials from the regulators said in a statement.

The draft plan also comprehensively revised the rules for measuring risk-weighted assets, asking banks to develop effective policies, procedures and measures to promptly and fully monitor changing risks of their clients, and to improve information disclosure.

Global Times