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China curbs banks’ liquidity risks with new rule

Updated: May 25,2018 7:45 PM     Xinhua

BEIJING — China released a newly revised rule on May 25 to help lenders better guard against liquidity risks.

The rule will take effect from July 1, with three news indicators introduced to gauge liquidity risks, according to the China Banking and Insurance Regulatory Commission.

One of the three new gauges is the net stable funding ratio, which measures banks’ long-term stable funding to support business development. The ratio will apply to lenders with assets of no less than 200 billion yuan (about $31.3 billion).

The high-quality liquid assets adequacy ratio, which evaluates whether banks have enough high-quality liquid assets to cover short-term liquidity gaps when under stress, will apply to lenders with assets below 200 billion yuan.

The liquidity matching ratio, which applies to all lenders, gauges how well bank assets and liabilities are matched in maturity.

All three ratios are required to stay no lower than 100 percent but with grace periods. The high-quality liquid assets adequacy ratio should reach 80 percent by the end of 2018 and 100 percent by the end of June 2019. The liquidity matching ratio requirement will be implemented from January 1, 2020.

The move can “help commercial banks improve their capability in guarding against liquidity risks, serve the real economy, and maintain safe, stable operation of the banking system,” the commission said in a statement.

Interest rate liberalization, financial innovation, and stronger interbank connections have made China’s financial sector more vibrant but also prone to risks, prompting authorities to put priority on financial security through tightened regulation.