Mid-tier banks to tap markets for 100b yuan
Mid-sized banks on the mainland are expected to raise more than 100 billion yuan (HK$118.51 billion) on stock markets this year to bolster their capital reserves.
The new round of fund-raising by the banking sector is likely to extend into 2012, say analysts, as the lenders grapple with rising non-performing loans that could amount to trillions of yuan following reckless loan approvals in the previous two years.
According to estimates by analysts, a clutch of mid-size banks including China Minsheng Banking Corp and Hua Xia Bank have plans to tap stock markets. They will look to raise the capital through initial public offerings, placements of additional shares, and the issuance of convertible bonds.
The projected amount of 100 billion yuan will represent little more than one quarter of the total capital raising by the mainland's bigger banks last year.
'The sum of 100 billion yuan may appear minimal, but the fund raising by the mid-size banks is seen as just a transition,' said Zhong De Securities' analyst She Minhua. 'It's a signal that the mainland banks' thirst for huge capital infusion is increasing, rather than shrinking.'
The mainland's biggest banks including the Big Four lenders, completed several mega-fundraising deals last year in a move to boost capital adequacy and ward off potential bad-loan risks after a lending spree in 2009.
The mainland's banks granted a total 9.6 trillion yuan of loans in 2009, nearly double the minimum target of 5 trillion yuan. New loans of 8 trillion yuan in 2010 exceeded Beijing's initial quota of 7.5 trillion yuan despite the government pursuing a tighter monetary policy.
Mainland banking regulators gave the biggest lenders a priority to raise funds last year, encouraging them to raise much-needed capital from the stock markets in Shanghai and Hong Kong. Chinese banks require approvals from the mainland's securities and banking regulators before they access capital markets for fresh funds.
Agricultural Bank of China, the worst-performing lender among the Big Four, conducted a dual Hong Kong-Shanghai IPO last July, raising a combined US$22.1 billion to set a new world record for IPO proceeds.
But while the big Chinese banks have said they will not raise further funds on stock markets in the next few years, mid-size banks have accelerated their capital raising plans.
Apart from the listed banks, unlisted banks such as Bank of Shanghai and Guangdong Development Bank have been actively seeking IPOs to replenish capital.
'For Bank of Shanghai, an IPO is necessary since we won't be able to meet the regulator's requirement on capital adequacy ratio without new funds,' said a manager with the bank who asked not to be identified.
The China Banking Regulatory Commission said it would raise the tier-1 capital adequacy ratio for banks to 8.5 per cent from 4 per cent, a move in line with the global Basel III accord reached last September.
It was reported by Chinese media last week that the banking sector was found by the CBRC to have an outstanding 1.77 trillion yuan of questionable loans that were extended to the financing vehicles of local governments - state-owned companies responsible for fundraising and investments in government-backed infrastructure projects.
Loan burden
Mainland banks are lending far more than Beijing wants
Media reports say the bank sector has outstanding questionable loans to local governments amounting to, in yuan: 1.77tr yuan
