China sets new capital rules for commercial banks

China on Wednesday decided to put its lenders under the regulatory supervision within the Basel III framework -- a set of tougher capital rules on banks agreed upon by G20 leaders in 2011 -- starting Jan.1, 2013.

The decision was made by an executive meeting of the State Council, or cabinet, after hearing the report by the China Banking Regulatory Commission (CBRC). The meeting was presided over by Premier Wen Jiabao.

Banks will be given a grace period of 10 years to clean up their unqualified capital tools that have already been sold, according to a statement released after the meeting.

The statement said that under new regulations, systematically important banks will be subject to a capital adequacy ratio (CAR) of 11.5 percent, while other banks will be subject to a CAR of 10.5 percent. Both requirements remain unchanged from the country's existing regulatory rules.

The new regulations allow commercial banks to take in reserves for excess loan losses as capital and define a series of "qualified standards" for capital tools such as subordinated bonds.

Banks are required to expand the scope of their risk supervision framework, adding operational risks into the current one that highlights credit and market risks, according to the statement.

The new regulations also clarify rules that encourage banks to carry out financial innovation and increase loans for small businesses and individuals to support the real economy.

Banks should properly control credit expansion in the transitional period, the statement said.

Wednesday's meeting underscored the important role the banking industry has played in the nation's economic development and called for coordinated efforts of relevant authorities to create a sound financial environment for future growth, according to the statement.