China Weighs $142 Billion Capital Injection Into Top Banks
(Bloomberg) -- China is considering injecting up to 1 trillion yuan ($142 billion) of capital into its biggest state banks to increase their capacity to support the struggling economy, according to people familiar with the matter.
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The funding will mainly come from the issuance of new special sovereign bonds, said the people, asking not to be identified discussing a private matter. The details have yet to be finalized and are subject to change, the people added. Such a move would be the first time since the global financial crisis in 2008 that Beijing has injected capital into its big banks.
China is rushing to replenish its banks — even though the top six have capital levels that far exceed requirements — after unveiling broad reductions to mortgage rates and slashing key policy rates to revive the economy. Enlisted to support the economy over the past years, lenders such as Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. are now battling record low margins, sinking profits and rising bad debt.
Li Yunze, the nation’s top banking regulator, said earlier this week at a press conference in Beijing that authorities would act to boost core tier 1 capital at its six major commercial banks, without elaborating. The National Financial Regulatory Administration didn’t respond to a request for comment.
“This is a different type of stimulus,” said Hao Hong, chief economist at Grow Investment Group. “If done through special bond issuance it’s a fiscal stimulus and can stabilize the banks as property prices continue to decline. It will ensure that the banks lending capability won’t be affected.”
China’s mega banks have been under growing pressure from regulators to shore up the struggling economy by offering cheaper loans to risky borrowers — from real estate developers and home owners to cash-strapped local government financing vehicles. Most recently, some of the lenders heeded government calls to pay their first ever interim dividends to support the stock market even as profit growth and margins are sliding.
ICBC erased losses after this article was published, trading little changed in Hong Kong as of 2:14 pm. Bank of China gained 1.1%.
Funding now is favorable for the government. In May, China kicked off another planned issuance of 1 trillion yuan in ultra-long special sovereign bonds, targeting to wrap up the sales in mid November. The latest auction saw a 30-year bond sold at an average yield of 2.19%, a record low based on Bloomberg data on past issuances of the tenor that dates back to 2007.