Bank of China

Fund-raising not on BOC agenda, chief says

PUBLISHED : Thursday, 21 July, 2011, 12:00am
UPDATED : Thursday, 21 July, 2011, 12:00am

Bank of China, unlike its major mainland competitors, has no immediate plans to raise more capital, says Li Lihui, president of the mainland's biggest foreign exchange lender.

So far this year, 14 mainland banks have announced plans to raise a combined 460 billion yuan (HK$554.12 billion) in the stock and debt markets on the mainland and in Hong Kong - in order to obtain additional capital after the China Banking Regulatory Commission increased capital adequacy requirements.

Bank shares have fallen out of favour this year over a variety of concerns: profit dilution as a result of the fund-raisings; an explosion of bad loans to local government financing vehicles, stemming from earlier efforts to stimulate the economy; and huge share sales at the banks by foreign institutional investors. But BOC had no fund-raising plans 'for the moment', Li said on the sidelines of a banking report launch yesterday.

Its capital adequacy ratio fell 0.2 percentage points in the first quarter to 12.38 per cent, compared with the required minimum of 11.5 per cent. The core capital adequacy ratio fell 0.13 percentage points to 9.96 per cent, above the required 8.5 per cent.

The lender issued 32 billion yuan in subordinated debt in May to strengthen its balance sheet.

Li said the risks in its loans to local government financing vehicles were 'controllable', and Temasek Holdings did not have any further plans to cut its stake in the mainland Chinese lender.

Temasek, Singapore's state investment firm, sold about 5.19 billion H shares in BOC this month. After the offloads, it holds about 5.3 billion shares of the BOC's H-shares. Temasek's stake will fall to 1.9 per cent, based on its year-end report.

Temasek said the sales were normal 'portfolio adjustments'. However, many investors are concerned about the asset quality of banks after the lending spree to help stimulate the economy following the 2008 financial crisis.

The Chinese banking regulator has warned that 73 per cent of loans to local government investment vehicles were doled out to projects with insufficient cash flows to make their interest payments.