The fundraising aims to replenish core Tier-1 capital to help ensure that the financial system has the necessary resilience and lending capacity. — Bloomberg
BEIJING: China’s major state-owned commercial banks plan to raise up to 520 billion yuan (US$71.7bil) via private placements from investors, including the finance ministry, a forward-looking move which analysts say will help forestall financial risks and better support the real economy.
The fundraising aims to replenish core Tier-1 capital – the core capital held in a bank’s reserves – to help ensure that the financial system has the necessary resilience and lending capacity to support the economy’s transition toward innovation and consumption-led growth, they said.
Bank of Communications, Bank of China, Postal Savings Bank of China and China Construction Bank announced plans on Sunday to raise a combined 520 billion yuan through additional offerings through the Shanghai Stock Exchange.
The Finance Ministry will fully subscribe to the new shares issued by Bank of China and China Construction Bank, while also taking up over 90% of the new shares offered by Bank of Communications and Postal Savings Bank of China, committing a total of 500 billion yuan in cash subscriptions.
The banking sector is currently facing challenges of limited profit growth, primarily due to factors such as narrowed net interest margins.
This constraint has hindered the capacity to strengthen capital reserves through retained earnings, necessitating external capital infusions, said Lou Feipeng, a researcher at Postal Savings Bank of China.
Amid economic challenges and subdued demand, the sector is increasingly exposed to risks associated with non-performing loans, highlighting the critical need for enhanced capital buffers to reinforce risk resilience capabilities, Lou said.
The ministry said in a statement that it will issue the first batch of 500 billion yuan in special government bonds in 2025, with the proceeds earmarked to support the core Tier-1 capital replenishment of major state-owned banks.
“The current core Tier-1 capital adequacy ratios of state-owned banks are higher than the regulatory bottom line, and their operations are stable,” said Ming Ming, chief economist at Citic Securities.
The bank-specific and market-oriented approach to capital replenishment is a forward-looking strategic arrangement, prioritising the long-term financial stability and growth of the real economy, Ming said, adding that by leveraging a multiplier effect of eight, the 500 billion yuan capital injection can potentially catalyse four trillion yuan in additional lending capacity.
Since September last year, policymakers have said on various occasions they would issue special government bonds to support the core Tier-1 capital replenishment of the country’s state-owned commercial banks. — China Daily/ANN
