CBIRC Hopes to Facilitate Capital Supplementation by Commercial Banks with Rules Revision

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China’s banking regulator has unveiled revisions to rules governing the use of capital supplementation instruments by commercial lenders in a bid to bolster the health of smaller regional banks.

The China Banking and Insurance Regulatory Commission (CBIRC) announced on 29 November that it had recently released and implemented the amended version of the “Guidance Opinions Concerning Commercial Bank Capital Instrument Innovations” (关于商业银行资本工具创新的指导意见).

A senior official from CBIRC said to state-owned media that the revisions cover a total of five areas including:

  1. Adjustments to the names of the trigger incidents for capital instruments, in order to more accurately reflect their meaning;
  2. Adjustments to trigger conditions for other first-tier capital instruments, with the setting of different trigger conditions based on accounting category;
  3. Provisions on the order of capital instrument loss absorption – loss absorption should be simultaneous for capital instruments at the same grade, and sequential for capital instruments at different grades;
  4. Confirmation that write downs are permanent write downs, and that when trigger incidents arise capital instruments can be partially written down, but that the written down part cannot be restored;
  5. Confirmation of requirements in relation to the issuance of capital instruments by commercial banks, including the use of market-based pricing to attract diversified market entities to participate in investments, and ensuring the orderly matching of capital instrument issuance and redemption.

According to the CBIRC official the amendments will be of benefit to Chinese commercial banks issuing and innovating capital instruments, further driving market-based pricing of capital instruments, supporting commercial banks in continued capital supplementation, increasing risk resistance capability and better servicing the real economy.

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