(Yicai) Nov. 2 -- China will relax its commercial banking rules to favor smaller banks, thereby making it easier for rural and micro businesses to borrow.

The National Administration of Financial Regulation will adjust regulations to lower the compliance cost to small and medium-sized lenders, it said in a regulatory document released yesterday. The changes will come into force on Jan. 1.

The new rules divide banks into three tiers based on their respective asset balances, the balances of their overseas liabilities at the end of the previous fiscal year, and whether they mainly serve regional or national clients, with smaller or low-tier banks enjoying the most favorable regulation to help them save costs and encourage them to focus all their efforts on serving local small and micro enterprises.

The low tier involves lenders with less than CNY10 billion (USD1.37 billion) in assets and without overseas claims and debts, according to the document.

In comparison, the middle-tier banks, which have assets of between CNY10 billion and CNY500 billion (USD1.37 billion to USD68.4 billion) or are smaller lenders, but with overseas claims or debts, will be subject to stricter but still quite simplified regulation of their assets.

For the first-tier banks, who either have CNY500 billion or more in assets, or have total overseas claims and debts making up more than 10 percent of total assets, or exceeds CNY30 billion, strict international standards of capital regulation will be applied.

The changes will improve China’s existing bank rules within the framework of the three pillars of the latest Basel Capital Accord to make bank capital monitoring more consistent with China’s specific economic and financial situation and the risk features of its commercial banks, an NAFR official said at yesterday’s press briefing to release the regulatory document. 

The three pillars of the series of agreements set by the Basel Committee on Bank Supervision are minimum capital requirements, supervisory review, and enhanced market discipline.

China has a large number of banks and financial institutions and different lenders vary greatly in business scale, complexity, risk features, and database capacity, the official added.

Editors: Tang Shihua, Emmi Laine