The China Banking Regulatory Commission (CBRC), the nation's top banking regulator, is drafting a guidance document to adopt a new regulatory framework consisting of four new regulatory tools for commercial banks. The document will be released soon, said the CBRC spokesperson, China Securities News reported Tuesday.

He made the remarks in response to earlier media reports that the State Council, China's Cabinet, had approved CBRC's application for using capital adequacy ratio, provision rate, leverage and liquidity as the new regulatory tools, the newspaper said.

The guidance document has entered the final round of consultation. The tools of leverage and liquidity are expected to be adopted earlier and provision rate will be set at 2.5 percent, the report said.

Large banks will be given two years as a transitional period and for small-and-medium-sized banks it will be extended to five years. The capital tools will not greatly raise capital requirements for banks in the short term, the report said.

One analyst said the banking regulator, considering the reform trend in international banking, began working on the new regulatory tools since the end of 2009. The raised capital adequacy ratio and the introduction of provision rate had significant influence on the banking capital and profits. This time, due to the allowed transitional periods the new regulatory tools will not have an obvious effect on commercial banks' profits.

The analyst said adopting the new tools will help establish a risk controlling framework with incentives. If a commercial bank has strong risk management capability, its capital adequacy ratio could be moderately reduced and vice versa.

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He said adding the new tools will control new risks and enhance proactive management. The four tools will work together to balance the structure and quantity of banks' capital. If the provision rate is raised, net profit will go down. As a result, the retained capital will be reduced and the capital adequacy ratio will drop. So capital adequacy ratio and provision rate will bring bilateral pressure to the banks. An increase in capital adequacy ratio will affect large banks and provision rate will mainly influence small- and medium-sized banks. As small- and medium-sized banks have been expanding too fast in recent years, their total provision has been lagging behind, he added.

In 2010, China's commercial banks' capital adequacy ratios were greatly increased. According to CBRC's statistics, as of the end of 2010, the weighted average capital adequacy ratio was 12.2 percent, up 0.8 percentage points from the beginning of 2010. The weighted average core capital adequacy ratio was 10.1 percent, up 0.9 percentage points.