CORRECTED – CORRECTED-UPDATE 1-Basel III eases Asia bank capital raising fea

(Corrects IMF special adviser Zhu Min’s title in paragraph 13)

* Japan bank stocks rally after Basel III announcement

* Most Asian banks already meet new requirements

* China seeks co-ordinated implementation
(Adds quote from Japan regulator, details)

By Rachel Armstrong

SINGAPORE, Sept 13 (BestGrowthStock) – New bank capital
requirements agreed by global regulators brought relief to
Asia’s financial sector on Monday as fears that lenders might
be forced into fresh capital raising were put to rest.

The new rules, known as Basel III, will require banks to
hold top-quality capital totalling 7 percent of their
risk-bearing assets.

This is a substantial increase from the current requirement
of 2 percent, but is significantly lower than what banks had
feared earlier this year and comes with a phase-in period
extending in some cases to January 2019 or later.

“It’s no big bang for banks, not with a phase-in arrangement
of five years,” said Commonwealth Securities analyst Craig
Japan’s largest banks, which have some of the lowest levels
of capital in Asia, rallied on the news. Mizuho Financial Group
(8411.T: ) rose as much as 2 percent and Mitsubishi UFJ Financial
Group (8306.T: ) increased as much as 3.0 percent.

For a snap analysis on Basel III, click on

For a Reuters Breakingviews column, click on

For a full package Basel III stories, click

For a graphic on European banks ROE and tier 1 ratio:

Analysts at Macquarie estimate that Japanese banks have on
average a common equity ratio of 6.3 percent, just shy of the 7
percent requirement.

However, banks will not be required to meet the minimum
core tier one capital requirement, which consists of shares and
retained earnings worth at least 4.5 percent of assets, until
2015. An additional 2.5 percent “capital conservation buffer”
will not need to be in place until 2019.

“I don’t think any Japanese banks now have to raise capital
on the back of this, barring any sizeable acquisitions,” said
Ismael Pili, Macquarie’s head of Asian financials research.

An official from Japan’s regulator, the Financial Services
Agency (FSA), said Japan’s top banks can meet the new capital
requirements “within their usual business efforts,” adding he
did not think the banks would be forced to raise fresh capital
or drastically reduce their assets.


For China, it may take some time before the new measures
hit the rule books, one of the country’s top bankers said.

“It will take a long time to implement Basel III rules,”
Bank of China Chairman Xiao Gang told Reuters on the sidelines
of the World Economic Forum’s summer meeting in Tianjin, China.

“It’s also difficult to say when China will implement this
rule because we haven’t exercised Basel II yet,” he said.

However, Zhu Min, a special adviser to the IMF and former
deputy governor of the Chinese central bank, signalled he is
keen for the rules to be adopted in a co-ordinated manner.

“The concern is that if everybody in the world applies
different levels at the same time, it may cause international
arbitrage in the regulatory framework,” he told reporters in


Most banks in the rest of Asia have capital levels well
above the minimum levels under Basel III. That presents some
banks with an opportunity for further growth by releasing some
of their surplus capital, some analysts said.

“From here in Asia, the trick is to find the
well-capitalised banks and match them with markets ripe for a
further expansion in lending,” said Macquarie’s Pili, adding
Indonesian banks have the most to benefit from the new

But with Asia leading the global economic recovery, the
region’s banks are likely to be the first in the world to have
to meet the additional counter-cyclical capital buffer of 0 to
2.5 percent, which national regulators will apply during
periods of excess credit growth.

“My take for non-Japan Asia, you are still looking over the
course of the next 10 years at significantly more capital in
the system,” said Bill Stacey, head of equities at Keefe,
Bruyette & Woods Asia in Hong Kong.

He added that if regulators in Asia make full use of the
counter-cyclical buffer, some banks may face a total capital
requirement of 13 percent – the 10.5 percent tier one and tier
two requirement plus the buffer on top.

For Europe, the pain is likely to be more immediate. Top
German lender Deutsche Bank (DBKGn.DE: ) is seeking a headstart
on its rivals by announcing plans to raise almost 10 billion
euros to bolster its capital.

Other banks in Germany, Spain, France, and elsewhere are
likely to follow suit to meet the new standards.

But the long run-up period that banks have to meet the
requirements is likely to make the process easier for Europe’s
financial sector. The euro (EUR=: ) rallied almost 1.0 percent
against the dollar in Asian trade to hit $1.2808.

This implementation period raised questions, though, about
whether heavy lobbying and the global economic recovery reduced
regulators’ resolve for harsher measures following the deepest
financial crisis in decades.

“The phasing-in period for the new capital requirements is
surprisingly long, which will add to the scepticism about the
robustness of the bank capital enhancement efforts,” said
Mohamed El-Erian, co-chief investment officer at Pimco, the
world’s biggest bond management company.

The Basel III agreement was reached in Switzerland by
central bank governors and top supervisors from 27 countries,
after a year of horse-trading and lobbying that involved banks
and governments seeking to protect their national interests.

Along with the capital standards, Basel III includes a
range of reforms agreed earlier this year to reduce risk-taking
by banks, including rules on how liquid banks’ assets must be
and how banks must treat tax assets on their books. Some
changes were watered down in July after strenuous lobbying by

Leaders of the Group of 20 rich countries and big emerging
economies, blaming the global credit crisis partly on risky
trading by banks, called on regulators in 2009 to work on
tougher bank capital rules.

The G20 leaders are set to endorse Sunday’s deal when they
meet in Seoul in November.
(Additional reporting by Narayanan Somasundaram, Denny Thomas,
Ben Lim, Aileen Wang and Taiga Uranaka; Editing by Alex
Richardson and Neil Fullick)

CORRECTED – CORRECTED-UPDATE 1-Basel III eases Asia bank capital raising fea