Chinese banks in need of capital injection to give thrust to economic stimulus steps

FE Team | Published: September 27, 2024 00:53:35

HONG KONG, Sept 26 (Reuters): As China steps up efforts to stabilise its economy with fresh stimulus, the country's top banks would need to be capitalised at the earliest to help them boost lending to revive faltering growth and manage asset quality strains, analysts said.
Chinese banks' profitability, which has already been under pressure due to the economic slowdown and the property sector crisis, is set to take another hit by a further reduction in mortgage rates announced on Tuesday.
While the top banks are likely to lower their deposit rates to cushion the impact on their margins, analysts say they would need fresh capital injection to offset growing asset quality woes and, potentially, bail out the smaller peers.
China's big state-owned banks are generally tapped to rescue the struggling small and mid-sized lenders, many of whom reel from lower capital buffers, poor asset quality, and fewer sources of raising fresh capital.
China's four biggest banks, including Agricultural Bank of China and Bank of China, needed 738 billion yuan ($105 billion) of total loss-absorption capacity (TLAC) capital as of end-June, as per S&P Global Ratings.
Bloomberg News reported on Thursday China was considering injecting up to 1 trillion yuan ($142.39 billion) of capital into its biggest state banks to increase their capacity to support the struggling economy.
The funding will mainly come from the issuance of special sovereign bonds, it said, in what would be the first time that authorities have capitalised the Chinese banks since the global financial crisis.
"It (capital injection size) depends on what condition the regulators want the banking system to reach. If sticking to the bottom line of preventing systematic financial risks, the work could be focused on small and medium banks, because big banks for now have sufficient capital," said Xiaoxi Zhang, China finance analyst at Gavekal Dragonomics.