China's Administrative Measures for the Capital of Commercial Banks set capital-adequacy and supervisory requirements under NFRA Order No. 4 of 2023. Issued on 26 October 2023 and effective from 1 January 2024, they connect banks' capital assessment with the oversight framework.
TL;DR:
- Capital and leverage requirements apply to commercial banks established in China.
- Three bank categories use proportionate risk-measurement and disclosure approaches.
- Effective January 2024, with supervisory review and additional systemic requirements.
Summary
A prudential framework for commercial banks
NFRA Order No. 4 of 2023 revises the Administrative Measures for the Capital of Commercial Banks, effective from 1 January 2024. The measures apply to commercial banks legally established in China and seek to strengthen the resilience of the banking system and protect depositors. The capital framework concerns the institution's capacity to absorb risks, rather than the technical operation or customer terms of a particular payment product.
Capital ratios and the risks behind them
The measures define capital adequacy by comparing eligible regulatory capital with risk-weighted assets. They distinguish total capital, Tier 1 capital and common equity Tier 1 capital, alongside a leverage measure based on adjusted on- and off-balance-sheet exposures. This means that the amount and quality of capital both matter. A bank's nominal balance sheet alone does not establish whether it meets the complete regulatory capital requirement.
Proportionality across three bank categories
The rules divide banks into three categories using the specified size and overseas-exposure tests. The first two categories follow the relevant chapters and annexes, while the smallest category without overseas exposure follows a simplified annex. Systemically important banks must also meet the additional requirements applicable to them. These distinctions prevent a single headline ratio or risk methodology from being presented as the entire framework for every bank.
Supervisory review and payment-sector relevance
NFRA and its local offices can assess capital adequacy and take supervisory measures where requirements are not met. For payment activity, the measures are relevant to a commercial bank participating as account provider, issuer or settlement institution because those functions sit within its wider risk-bearing business. They do not confer banking authorisation, replace separate operating requirements or establish that a connected non-bank payment provider is governed by the same capital regime.
Keywords
- China banks
- NFRA capital
- prudential ratios
- leverage requirements
- risk-weighted assets
- qualifying capital
- proportionate disclosure
- supervisory review
- systemic requirements
- bank categories