China will postpone the implementation of new capital adequacy rules for banks until the end of this year, three sources with knowledge of the matter told Reuters.

Two sources in the financial sector and one with direct knowledge of the discussions between the government and the regulator, the China Banking Regulatory Commission (CBRC), said the delay had recently been agreed.

"The banking regulator's original plan was to start the new rules from July 1 once getting the State Council's approval. But now they have to further postpone it and the earliest possible date could be the end of this year," said the source with direct knowledge of the matter.

"The State Council has not yet approved the proposed CBRC rules," the source added, requesting anonymity to avoid repurcussions.

The CBRC in August 2011 published a set of draft rules on bank capital and liquidity requirements as part of efforts to implement the so-called Basel III capital adequacy rules, designed by international banking regulators to help lenders rein in risks.

The draft rules have been modified several times after bank executives and industry analysts complained the rules were too harsh, and further adjustments are now expected to be made.

Local newspapers had earlier reported that China's banking watchdog decided to indefinitely postpone new bank capital adequacy rules while concerns grew about the risk of cutting lending capacity as the economy slowed.

A CBRC spokesman said the State Council was still examining the draft regulations.

"Right now, the work related to drafting and publishing the new capital rules is still going on and it is following the normal procedure of regulation approval," the spokesman said.

The August 2011 draft regulations would require all banks to maintain a minimum capital adequacy ratio of 10.5 percent, with systemically important banks subject to an 11.5 percent ratio.

According to CBRC's original plan, big banks would have to meet the rules by the end of 2013, and small banks have to meet the rules by the end of 2016.

The new capital requirements were originally scheduled to gradually take effect in January this year, but had already been delayed in order to avoid exacerbating already-tight credit conditions.

Basel III rules are being phased in internationally over six years from 2013. Banks have long warned that complying with the Basel rules in full, along with surcharges for the largest lenders, could force them to cut back on loans to businesses, potentially hurting already struggling economies.

The Financial Stability Board, the regulatory arm of the world's top economies represented at the Group of 20, said banks were making progress in strengthening their balance sheets. Reuters

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