Bank stocks tumble after warning about asset gap

PUBLISHED : Tuesday, 23 August, 2011, 12:00am
UPDATED : Tuesday, 23 August, 2011, 12:00am


Shares of two of the mainland's largest banks fell to a near two-year low yesterday after a former central bank official said that lenders of 'systematic importance' will face a financing gap of 400 billion to 500 billion yuan (HK$487 billion to HK$609 billion) in the next five years.

Wu Xiaoling, a former deputy governor at the People's Bank of China, said over the weekend that mainland banks would face substantial capital stress after the implementation of the Basel III framework, the new global banking requirements agreed by G20 leaders at the end of last year. Wu (pictured) made the remarks at the annual China Bankers Forum in Beijing, Xinhua reported.

There is no official definition of 'systematic importance', but Liao Qiang, director of financial institutions ratings at Standard & Poor's, said Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Bank of Communications, and China Merchants Bank are believed to be in that category.

Two mainland bankers said according to what they have learned from the China Banking Regulatory Committee, there is still debate on whether China Merchants Bank and Bank of Communications would qualify for the distinction.

ICBC and China Construction Bank's shares fell to their lowest point in more than two years yesterday. ICBC slid 1.24 per cent, or 6 cents, to HK$4.79. China Construction Bank dropped 1.33 per cent, or 7 cents, to HK$5.2. Shares of China Merchants Bank also came under pressure.

'The market was surprised and has overreacted to the ex-PBoC official's comments, as the figures were bigger than market expectations, and the estimates were given without a lot of details,' said Victoria Mio, a senior portfolio manager at Robeco Group,

Stanley Li, an analyst at Mirae Asset Securities, said potential capital shortfalls under the proposed new capital rules was just part of the reason for the sluggish stock performances of Chinese banks. Asset quality and poor market conditions in the US and Europe were factors, too.

Wu said Chinese banks would need more market financing, or they would need to seek government financial support.

Regulators have drafted tougher capital rules to meet the Basel III regulations. The rules will require banks of systematic performance to keep a minimum capital adequacy ratio, which measures a bank's capital against risk-weighted assets, of 11.5 per cent. Banks of non-systematic importance would have to meet a threshold of 10.5 per cent.

493b yuan

Amount of new debt, in yuan, issued by mainland banks in July. Such growth could make it harder for banks to meet global standards