China to start bank recapitalisation with at least 400 billion yuan

CHINA plans to start re-capitalising several of its biggest banks in coming months, according to people familiar with the matter, following through on a broad stimulus package unveiled last year to shore up the struggling economy.

Authorities are looking to inject at least 400 billion yuan (S$73.7 billion) of fresh capital into the first batch of banks that include Agricultural Bank of China, Bank of Communications and Postal Savings Bank of China, said the people, asking not to be identified discussing private information. The plan, which could be completed as soon as the end of June, is subject to change and the amount for each bank is still being finalised, said the people.

China’s banking regulator first flagged its plan to replenish core tier-1 capital at the six top state lenders in September, without elaborating. The Ministry of Finance later said that it will issue special sovereign bonds to fund the injections, which will strengthen the capability of banks to fend off risks and spur lending.

In total, China could inject as much as 1 trillion yuan of capital into its largest banks, with funding mainly from the issuance of new special sovereign debt, Bloomberg News reported last year.

The Ministry of Finance, the National Financial Regulatory Administration, Agricultural Bank and BoCom did not immediately respond to Bloomberg requests for comment.

Agricultural Bank rose 2.6 per cent and Bank of Communications gained 2.2 per cent in Hong Kong.

China is beefing up the strength of its banking system – even though the top six have capital levels that far exceed requirements – after enacting a slew of stimulus policies including broad reductions to mortgage rates and slashing key policy rates. Enlisted to support the economy over the past few years, lenders such as Agricultural Bank and Postal Savings are now battling record low margins, sinking profits and rising bad debt.

Chinese banks had typically relied on retained profits to increase capital buffers, and some also went on a debt issuance spree to take advantage of cheaper rates in the bond market. A capital injection from Beijing would mark the first such move since the global financial crisis in 2008. BLOOMBERG

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