Four of China’s largest state banks plan a total of up to 520 billion yuan in private placements to boost core tier-1 capital, after Beijing pushed for stronger buffers for lenders to better support the economy.
Bank of Communications will sell up to 120 billion yuan (S$22 billion) of A shares in a private placement to investors including the Ministry of Finance, according to a Sunday (Mar 30) filing. Bank of China, Postal Savings Bank of China and China Construction Bank plan placements of 165 billion yuan, 130 billion yuan and 105 billion yuan worth of A shares respectively to the finance ministry and other investors, according to separate filings.
China’s finance ministry will either take up the majority of the shares to be placed or subscribe to all of them, according to the filings. The shares will be sold at a premium between 8.8 per cent and 21.5 per cent above their Friday closing levels in Shanghai.
The announcements follow Chinese authorities’ pledge in early March to issue 500 billion yuan in special sovereign bonds to replenish capital at the nation’s biggest state-owned banks. The plan to help out the lenders was first flagged as far back as September and the government later said it would tap the notes to fund the injections.
China is beefing up the strength of its banking system – even though the top six lenders have capital levels that exceed requirements – after enacting a string of stimulus policies including cuts to mortgage and policy rates.
Enlisted to support the economy over the past few years, the lenders are battling record-low margins, slowing profit growth and rising bad debt. The sector’s net interest margin – a gauge of profitability – had slipped to 1.52 per cent at end-2024, the lowest ever.
Stronger capital buffers will allow lenders to potentially provide more loans as Beijing vowed greater support for sectors from property to consumer and technology to achieve a growth target of about 5 per cent this year. It’ll also serve China’s purpose to maintain financial stability and keep risks in check, while it contends with both domestic woes and tariff shocks from the US. BLOOMBERG
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