From the perspective of time, it has been ten years since the promulgation of the old Measures for the Management of Capital of Commercial Banks (Trial) (hereinafter referred to as the "Capital Measures"). However, with the changes in China's economic and financial situation and commercial banking business model, it is necessary for the Capital Measures to keep pace with the times, especially in 2017, the Basel Committee (BCBS) officially released the final version of Basel III, and the international capital supervision standards also ushered in reform, in this domestic and foreign situation, the "Draft for Comments" came into being, which also means that Basel III will officially land on China's supervision.
The Draft applies to commercial banks established in the People's Republic of China, including Chinese-funded banks, wholly foreign-owned banks and Sino-foreign joint venture banks. It is not difficult to see from the general provisions of Chapter I that the core of this revision is to build a differentiated capital supervision system, and on this basis, reconstruct the measurement rules for risk-weighted assets, improve the supervision and inspection regulations, and improve the information disclosure standards and content.
Table 1: Conditions for classifying commercial banking institutions
Among them, overseas claims and debts refer to the sum of the bank's overseas claims and overseas debts. At present, most of the branches of foreign banks in China are in the second tranche due to business restrictions, which is suitable for simplifying the regulatory rules. However, the CBIRC reserves the right to adjust the classification standards of institutions and the grades of institutions belonging to individual banks in a timely manner, so the institutional grades of banking institutions are not necessarily fixed.
Banks confirm their grades according to their own asset scale and the scale of overseas claims and liabilities, and match risk exposure and weight requirements according to grade classification.1.Credit risk
The Draft focuses on optimizing risk exposure categories and weights, detailing the requirements for dividing risk weights, implementing differentiated regulatory requirements for banks of different grades, and the measurement methods are still measured by the weighting method and the internal evaluation method, and the main contents of the changes in credit risk exposure categories are:
(1) Sovereign Risk Exposure
There have been minor adjustments to the scope and weight of sovereignty, with the addition of the European Central Bank, the European Union, the European Stability Mechanism and the European Financial Stability Mechanism.
(2) Risk exposure of public sector entities in China
The weight of risk exposure is refined according to different bond issuers and bond types, and the weight of risk exposure of China's general public sector entities recognized by the CBIRC is increased to 50%.
(3) Financial institution risk exposure
The risk exposure of financial institutions is divided into risk exposure of commercial banks and risk exposure of other financial institutions. The Draft divides domestic and foreign commercial banks into four levels according to their standard credit ratings: A+, A, B and C, and increases the measurement factor of cross-border trade in goods, and sets the corresponding weight ratio in combination with the original period of the business transaction, which is more complicated than the current measures, and proposes to banks that interbank counterparties should conduct customer information collection and credit risk assessment.
(4) Company risk exposure
Corporate risk exposure is classified as general corporate risk exposure and professional loans. The risk exposure of investment-grade companies (weight: 75%) and SME risk exposure (weight: 85%) under the general corporate risk exposure type has been reduced compared with the current method of 100%. Professional loans include project financing, goods financing (weight: 100%), commodity financing (weight: 100%), project financing is divided into pre-operation stage (weight: 130%), operation stage (weight: 100%), and differentiated measurement rules are set for different professional loan types and operation stages.
(5）Real estate loan risk exposure
The Draft classifies and measures real estate-related risk exposures separately, including real estate development risk exposure, residential real estate risk exposure, and commercial real estate risk exposure, and sets different measurement requirements for each type of risk exposure. The weight of real estate development risk exposure is based on business review and approval and whether compliance meets the prudential requirements, and the weight of residential real estate risk exposure and commercial real estate risk exposure is divided according to the repayment source, LTV and prudential requirements.
Individual risk exposure without currency mismatch is first divided into supervised retail personal risk exposure and other personal risk exposure, other personal risk exposure is increased to 100% compared with the current measures, and the weight of individual risk exposure with currency mismatch is 150%, and the bank needs to identify supervised retail individuals.
The Draft sets out different risk exposure categories and weights for the three banks, which are implemented in accordance with the requirements of the General Provisions and Annex 2.
The Draft revises the off-balance sheet credit conversion coefficient, and the changes in the CCF coefficient are shown in the figure below:
Table 2: Comparison of credit conversion coefficients for off-balance sheet items
2.Market risk aspects
The Draft retains and upgrades the original three measurement methods: the standard method, the internal model method and the simplified standard method.The new standard approach places greater emphasis on the division of bank books from transaction books and calculates capital requirements by determining risk factors and sensitivity indicators, replacing the original simple approach based on position and capital coefficients. At the same time, the new internal model method adopts the expected tail loss (ES) method instead of the value-at-risk (VaR) method to strengthen the sensitivity of banking institutions to tail losses.
The measurement of operational risk capital has abolished the advanced measurement method (i.e., the internal model method), retained the basic index method, and improved the standard method. The new standard approach is based on business metrics and introduces an internal loss multiplier (ILM) as an adjustment factor for capital requirements, enhancing risk sensitivity. At present, the first tranche banks should adopt the standard method to measure operational risk capital requirements, while the second tranche of commercial banks should adopt the basic index method.
4.Asset management products
The Draft further improves the assessment criteria for risks such as interest rates, liquidity, and reputation of banks' books. The Draft places greater emphasis on comprehensive risk management and includes large risk exposures in the scope of concentration risk assessment. It also explicitly requires the use of stress testing tools, risk management and additional capital provision.
Table 3: Information disclosure requirements for commercial banks of various grades
*Part of the content is quoted from: Measures for the Management of Capital of Commercial Banks (Draft for Comments) and related annexes, and answers to reporters' questions from the Measures for the Management of Capital of Commercial Banks (Draft for Comments).
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