China's banking stocks traded mixed on Tuesday following a media report that the regulator had raised capital requirements for the largest lenders.
But according to Standard & Poor's equity research, a crackdown on lending and an increase in capital adequacy ratios won't hurt the performance of the banking sector.
An earlier report by Bloomberg said that China's Banking Regulatory Commission (CBRC) increased capital ratios for the country's five biggest banks by between 0.2 and 0.3 percent each from 11.5 percent currently.
The China Banking Regulatory Commission has since denied the report, saying there has been no increase in the capital requirements for banks.
Speaking on CNBC, Lorraine Tan, VP of equity research in Asia for Standard & Poor's said that at least two of the banks, China Construction Bank and Industrial and Commercial Bank of China (ICBC) would not have to raise capital this year, and were thus, her preferred picks in the space.
"The reason why we like them is not just valuations but I think ... in terms of risks and in terms of balance sheet position, we are not expecting any sort of capital raising exercise at least for this year from these two banks. We are a bit more comfortable with where they are positioned," she explained on CNBC.
China Construction Bank and ICBC have a current capital adequacy ratio of 12.68 percent and 12.27 percent, respectively, well above the new target of 11.8 percent cited in the Bloomberg article.
Even though banks have slashed their 2011 lending growth, Tan believes that this slowdown would be compensated by the pick up in interest margins as the banks will be able to widen their spreads given the fairly strong demand for loans in China.
"Although the government is really stepping down on speculative pressures and all that, I think they are going to want to make sure that they do not choke off the economy. So I think when you are talking about an economy with a target growth rate of at least 8 percent, the lending growth has still got to be there to support that," Tan added.
"We are talking about lending growth coming down from 30 percent to about 16 percent thereabouts, so there is still very decent growth compared to most banks in Asia."