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Current Situation and Changing Trends of Capital Adequacy Ratio of China's Commercial Banks (No 113, 2015)
2015-08-31
——Based on Analysis of 21 Listed Banks
By Zhu Hongming & Lei Wei, Research Team on "Analysis of Listed Banks", Research Institute of Finance of DRC
Research Report No 113, 2015 (Total 4798)
Abstract:
Capital adequacy ratio (CAR) is one of the key regulatory indicators to judge whether a banking system is sound and stable. In recent years, China's banking sector has witnessed various challenges including downturn economic operation, a slowdown in the extension of credit, an increased tendency in the rebound of non-performing assets and the swift market-based interest rates reform. The performance of the banking system has become a focus of public concern. This paper gives an analysis of and relating reasons for the changes in the CAR of listed banks in 2014 as well as a forecast about its changing trends. It is revealed that the CAR of China's listed banks in 2014 shows a general rise. This is because, on the one hand, the listed banks continue to take internal financing as their main channel for supplementing capital since they still keep a roaring profitability, and, on the other hand, external financing channels have been expanded to include pilot projects for preferred stock. In addition, adjustment of the capital measurement approach of several major banks also contributes significantly to lifting the CAR. It is predicted that the CAR of China's listed banks in 2015 will face mild downward pressure and the falling of Core Tier 1 CAR is only possible when the profit decline of listed banks exceeds 13%.
