China's four largest listed banks will need 480 billion yuan (HK$545.76 billion) in five years to meet stiffer capital requirements ordered by the nation's banking regulator, according to the president of Industrial and Commercial Bank of China.
Yang Kaisheng, president of the world's largest lender by market value, described the dilemma faced by mainland lenders in an article yesterday in the 21st Century Business Herald newspaper. Banks have to expand their assets not only to make profits but to support the economy. At the same time, deteriorating capital adequacy ratios are forcing them to raise funds.
The article was published after ICBC, Bank of China and Bank of Communications announced plans to raise a combined 107 billion yuan this year to replenish capital. China Construction Bank Corp has not yet announced a financing plan.
The China Banking Regulatory Commission raised the requirement on capital adequacy ratio (CAR) this year to 11.5 per cent from 8 per cent for big commercial lenders to guard against problem loans after 9.6 trillion yuan of new loans were extended last year.
'If we don't have a mechanism for a stable CAR requirement in the foreseeable future our lending ability will be hampered because of the capital constraint,' Yang wrote in the article.
Fund-raising in capital markets would be limited in size because regulators will consider the market impact, Yang said. Moreover, reducing the already low dividend payout ratio of banks would breed shareholder discontent.
