August has been a bleak month for investors in the mainland's four biggest banks. Shares in the largest lender, ICBC, nosedived to a 52-week low yesterday. And the mainland's other 'big four' lenders - Agricultural Bank of China, Bank of China and China Construction Bank - have also slumped on fears they will be forced into emergency fund-raisings.
But while their share prices are perilously close to October 2008 levels, some analysts say the banks are not cheap enough to account for a likely wave of bad debts that could swamp their balance sheets and leave them thirsty for cash.
'Investors think the banks will require new capital,' said Charlie Awdry, manager of British investment house Gartmore's China fund.
Mainland banks extended 17.5 trillion yuan (HK$21.31 trillion) in new loans in 2008-09, under orders from Beijing to stimulate the economy. Much of this debt was doled out to local governments. Municipal authorities then ploughed money into major infrastructure projects such as highways and airports, which in many cases are failing to generate enough cash to service borrowings.
Mainland banks may need to tap shareholders for around US$700 billion to fund bad loan write-downs, according to economists at Spanish bank BBVA.
BBVA's estimate covers every mainland bank. The big four banks account for about 45 per cent of total banking assets on the mainland. So unless their loan quality is much higher than that of second-tier lenders, the big four may need to raise about US$315 billion.
Former People's Bank of China governor Wu Xiaoling said on Saturday that the big four banks only needed up to 500 million yuan. Still, even that conservative estimate was enough to send mainland bank shares tumbling. ICBC fell 1.6 per cent yesterday, and China Merchants' Bank, the mainland's largest non-government-owned lender, dropped 2.4 per cent to a 52-week low.