Most Asian banks will meet SIFI targets

The majority of Asian banks subject to additional capital requirements will be able to raise the extra capital needed to satisfy the regulations through retained earnings, Reuters reported.Bank of China , where asset growth is outstripping the banks ability to raise capital through earnings, is a possible exception.On Friday the Financial Stability Board named the global systemically important financial institutions. This classification will require the named Asian banks to hold more capital than their non-G-SIFI peerstypically one to 2.5 per cent additional capital consisting of common equity Tier 1 capital only. However, it should also increase the perception of banks creditworthiness, with potentially positive implications for deposit-taking and borrowing costs.A key question for the banks is how to achieve the higher capital requirements. They have some time to build capital, and Fitch believes it will be possible for Japanese banks Sumitomo Mitsui and Mitsubishi UFG to achieve the targets out of retained earnings. It will take longer for Mizuho given its relatively weak capital position. In addition, Bank of China may find this harder based on current capital levels - asset growth continues to outstrip the banks ability to increase capital through post-dividend retained earnings.If this continues, it would make other forms of capital-raising, such as equity issues, more likely.To avoid breaching the minimum regulatory requirements, which wouldthen require the suspension of dividends, it is likely that G-SIFIswill want to hold higher capital buffers than the minimum.At issue is how the non G-SIFI banks will position themselves to thenew global capital benchmark. Some of the larger regional banks inAsia-Pacific (including Australia, Singapore and Hong Kong) may moveto lift capital levels to be in line with their G-SIFI peers tosatisfy the markets perception of relative safety or to avoid beingperceived as a second-tier bank.Strong growth in the region also makes it likely that more Asian bankswill attain G-SIFI status. Their strong capital ratios will help themadapt to their new status. G-SIFI status is determined based on anindicator-based approach which comprises five broad categories: size,complexity, cross-border activity, how interconnected the institutionis with other players in the system, and whether the institutionprovides a unique and necessary financial activity
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