China issues rules to assess risks in foreign banks’ Chinese branches

CHINESE regulators published a set of rules on Tuesday (Dec 27) to assess the operational risks of foreign banks’ Chinese branches, as well as the level of support they receive from their global headquarters.

The China Banking and Insurance Regulatory Commission (CBIRC) said the rating system is designed to better allocate supervisory resources, and promote healthy development of foreign banks in China.

Based on the annual assessment results, Chinese regulators will instruct poorly rated foreign banks to improve their corporate governance, the CBIRC said in a statement on its website.

Foreign banks, including HSBC and Citi, have set up more than 40 China units, and over 100 local branches in China, according to official data.

Chinese regulators will assess foreign banks’ risk management, operational control, compliance and asset quality, the CBIRC said.

In addition, the regulator will also evaluate whether foreign banks’ headquarters have the ability and willingness to provide adequate financial and management support to their China branches.

Foreign banks then would be classified into five categories based on their health levels, with the top 1 rating suggesting stable operations and strong support from headquarters, and the bottom one pointing to serious defects and even crisis.

For poorly-rated foreign banks, Chinese regulators would take actions such as restricting capital expatriation, demanding fresh operating capital, and suspending the approval of new branches.

The CBIRC sent the rules to its local branches in a notice dated Nov 30. REUTERS