China to Tighten Bank Capital Rules

BEIJING (TheStreet) -- China is reportedly planning to tighten capital requirements for banks, which may force them to lower lending or sell shares in order to lift capital ratios.

Bloomberg reported that the China Banking Regulatory Commission sent draft rule changes to banks on Aug. 19, citing three people familiar with the matter. The rule changes will require banks to deduct all existing holdings of subordinated and hybrid debt sold by other lenders from supplementary capital, according to the sources.

Banks have until Aug. 25 to give feedback, the report said.

As a result of the rule changes, banks may need to curb record lending that has fueled a rally in the Chinese stock market. Additionally, banks may be forced to sell shares to lift capital adequacy ratios to the 12% minimum, the report said.