China issues draft loss-absorbing capacity rules for systemically important banks

[SHANGHAI] China on Wednesday published draft rules that require its global systematically important banks to beef up capacity to absorb losses to head off financial instability.

Such banks must meet specific total loss-absorbing capacity (TLAC) targets starting 2025, and the move is aimed at improving the risk-disposal mechanism at Chinese lenders, the China Banking and Insurance Regulatory Commission (CBIRC) said.

China's top four lenders - Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank are designated as global systemically important banks.

The new rules require that such banks in China hold a TLAC amount of at least 16 per cent of risk-weighted assets starting Jan 1, 2025 - six years later than major global banks elswere - and the bar is further raised to 18 per cent from Jan 1, 2028.

They face an estimated funding gap of 5.77 trillion yuan (S$1.16 trillion) to 6.51 trillion yuan by 2024 to meet TLAC requirements set by the Switzerland-based Financial Stability Board (FSB), S&P Global Ratings said on Aug 25.

The TLAC requirement was designed by the FSB to ensure global systemically important banks having a bottom line of risk buffers in case "too big to fail" financial institutions go bankrupt.

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REUTERS