China makes a move on Basel II implementation

Chinese regulators will begin accepting Basel II implementation applications from 2010

BEIJING – The China Banking Regulatory Commission (CBRC) has confirmed it will start accepting applications from domestic commercial banks to implement the Basel II framework from 2010.

In a statement published on its website, the CBRC says 2008 will be devoted to the preparation of implementation guidelines. A test period for policies will begin in 2009.The CBRC has already drafted five sets of supervision guidelines on the implementation of Basel II, which represent a more comprehensive and forward-looking set of standards for capital adequacy.

In the guidelines, the CBRC states that any implementation of Basel II by the Chinese banking sector “should proceed gradually given that large banks in China are not at the same scratch line with regard to the development of internal rating systems, quantitative risk measurement models, as well as the organisational framework process for risk management”.

The guidelines encourage Chinese banks to improve their risk management and to adopt the capital measurement approach with high risk sensitivity, to guard against rushing irrationally into the implementation.

Chinese banks are also permitted to meet the Basel II standards step by step. The regulator expects large banks to develop measurement models for credit risk and market risk in the first place, before moving onto operational risk. However, the CBRC urges banks to make adequate preparation by strengthening operational risk management and accumulating related data.

Click here to view the supervision guidelines.