More time needed for new bank regulation

China's new regulatory criteria for commercial lenders probably need a longer grace period as some banks face great challenges to meet the standards, said a senior analyst on Wednesday.

"The urban and rural commercial banks have very weak foundations, and even adopting the primary calculation method, it's hard for them to meet the regulator's requirement," said Yu Bing, a financial services partner at KPMG Advisory (China) Ltd.

She said the official target to have all banks reach the standards before 2018 might not be achieved, and Beijing should prolong the grace period for small lenders by another one or two years.

The China Banking Regulatory Commission said in May 2011 that it would adopt new standards based on the Basel II and Basel III agreements, the new global regulatory standards set by the Basel Committee on Banking Supervision.

The new rules set tougher criteria for lenders' capital adequacy, provisions, leverage and liquidity conditions.

Yu said among all the parameters, standards on liquidity are where banks lag farthest behind. "Most of the lenders haven't started to work on liquidity parameters."

Banks will have to maintain the liquidity coverage ratio and net stable funding ratio above 100 percent, according to the CBRC guidelines.

China later postponed implementation of the new rules, which were expected to take effect at the beginning of 2012, in response to downside economic risks and looser monetary policies.

Reuters reported earlier that the implementation had been postponed again from this July to year-end or even next year, citing an anonymous source.

Banks are facing rising liquidity risks in the financing of loans to local governments and in the real estate market, said Shang Fulin, chairman of the CBRC, in March.

"The CBRC is working on new liquidity risk rules based on international standards and will regulate bank deposits and loans more strictly," he said.

The CBRC will apply new regulatory parameters, such as the liquidity coverage ratio, which sets the standards on highly liquid assets held by banks to meet short-term obligations, and the net stable funding ratio, which measures medium- and long-term funding of the assets of banks, according to Shang.