HONG KONG: Asian banks’ shares rallied on Monday as regulators and investors shrugged off the biggest revamp to global banking rules in decades, confident that regional lenders were already in good shape.
The stricter new rules — known as Basel III — were agreed on Sunday at a meeting in Switzerland of international central bankers and regulators, who said they would avert any repeat of the devastating world financial crisis.
"This, along with global liquidity standards, will be an important financial reform measure after the financial crisis," China’s central bank said in a statement.
The Basel III rules will require banks to substantially raise the amount of capital they hold in reserve as insurance against a rainy day — a major change after the 2008 shock revealed inadequate financial buffers when crisis struck.
But the tighter rules will be phased in over several years, and are seen in Asia as a bigger burden for hard-pressed lenders in the West.
Against a backdrop of stricter regulation and a more risk-averse culture, Asian banks in general did not indulge in the orgy of risky bets on a shaky housing market that ignited a banking crisis in the United States and Britain.
Outside of sclerotic Japan, banks in the region have not had to go cap in hand for government help, although margins are being squeezed in China as authorities seek higher reserves amid fears about a potential property bubble.
"I think this will have more impact on European banks, because local banks have a healthy capital adequacy ratio," Castor Pang, research director at the financial firm Cinda in Hong Kong, told Dow Jones Newswires.
Hong Kong-listed shares of global banking heavyweight HSBC advanced 1.71 percent. In Japan, MUFG shares rose 1.99 percent and Mizuho were up 1.53 percent.
"We consider that the capital reforms are well balanced," said an official at Japan’s Financial Services Agency. "In that sense, banks in Japan will be able to achieve the standards through their management efforts."
Masumi Yamamoto, market analyst at Daiwa Securities Capital Markets in Tokyo, said: "This is something investors won’t have to worry about for several years."
Under the new rules to be phased in from 2013, banks would be required to hold more reserves by January 1, 2015, with their "core Tier 1 capital" raised to 4.5 percent from 2.0 percent now.
And banks would be required by January 1, 2019 to set aside an additional buffer of 2.5 percent to "withstand future periods of stress", bringing the total core reserves required to 7.0 percent.
Australian Treasurer Wayne Swan said his country’s banks would "comfortably meet the new requirements" — but warned lenders against passing on any costs to customers.
"These reforms will certainly not justify any bank looking to gouge its customers by raising rates above any future movements by the independent Reserve Bank (of Australia)," he said.
"We’ve just seen the major banks all report healthy profits with net interest margins higher than pre-crisis, and their impairment (risky loan) levels continue to improve due to our strong economy."
Stock in Australia’s biggest bank, Commonwealth rose 1.59 percent while in Singapore, DBS was trading 0.3 percent higher, OCBC rose 0.5 percent and UOB was off 0.2 percent in light trade.
"We see minimal impact on the three Singapore banks as their current (reserves) are way in excess of the Basel requirements," said the DMG securities house.
The regulations will be submitted for ratification at a G20 summit in South Korea in November.
It was a compromise deal after the United States and Britain had pressed for a faster implementation. The new rules are "not as strict as we had expected" in terms of the schedule, said a senior dealer at a European bank in Tokyo.