The China Banking Regulatory Commission (CBRC) is considering placing limits on subordinated bonds by making such bonds issued by a bank ineligible as capital if held by another bank, the Wall Street Journal reported, citing a source familiar with the situation. The move would effectively restrict bank lending at a time when strong lending growth has raised concerns about bad debt. The source referred to a recent document circulated by the CBRC that said 51% of subordinated loans are held by banks other than their issuer. Analysts said such a rule change would impact banks’ capital adequacy ratios, potentially forcing them to cut loans to maintain healthy ratios. Chinese banks have issued US$30.87 billion worth of subordinated bonds this year; US$10.5 billion worth of subordinated bonds were issued in all of 2008.
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