BEIJING MOVES TO TIGHTEN BANK CAPITAL RULES

       China plans to tighten capital requirements for banks, threatening to curb the record lending that has fuelled a 60-per-cent rally in the stock market, three people familiar with the matter said yesterday.
       The China Banking Regulatory Commission sent draft rule changes to banks on August 19 requiring them to deduct all existing holdings of subordinated and hybrid debt sold by other lenders from supplementary capital, said the people, who have seen the document.
       Banks have until August 25 to give feedback, said the people, declining to be named as the matter is private.
       As a result, banks may need to rein in lending or sell shares to lift capital adequacy ratios to the 12-per-cent minimum.
       Chinese stocks briefly entered a bear market this week on concern the government would stymie new loans that exceeded US$1 trillion (Bt34 trillion) in the first half.
       A news department official at the regulator declined to comment by phone and did not immediately respond to a faxed inquiry.
       "This move will cut one of the most important funding sources for banks," said Sheng Nan, an analysts at UOB Kayhian Investment in Shanghai.
       That money had helped to prop up shaky banks.
       It was intended to unlock lending to people and companies, a key component of any recovery but one that so far has had only spotty success.
       Banks will "have to either raise more equity capital or slow down lending and other capital consuming businesses to stay afloat."
       China's banks have sold 236.7 billion yuan (Bt1.2 trillion) of sub-ordinated bonds so far this year, almost triple the amount issued during all of 2008.
       The banking regulator estimates about half of the subordinated bonds in circulation are cross-held among banks.

       Banks will have to either raise more equity capital or slow down lending and other capital consuming businesses to stay afloat.