China’s banks aim to boost capital - Rmb500bn target to improve core ratios

China’s banks aim to boost capital - Rmb500bn target to improve core ratios
By Geoff Dyer and Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2009
Published: December 21 2009 20:14 | Last updated: December 21 2009 20:14
http://www.ft.com/cms/s/0/ab994d5c-ee6a-11de-944c-00144feab49a.html


Chinese banks will raise as much as Rmb500bn ($73bn, €51bn, £46bn) from capital markets next year to boost their core capital in the wake of this year’s lending boom, a senior official at the Chinese banking regulator has said.

Li Fuan, acting director-general of one of the China Banking Regulatory Commission’s departments, said China’s listed banks were likely to issue Rmb300bn-400bn in equity or bonds in 2010 to boost their financial strength.

In addition, Agricultural Bank of China would raise Rmb100-200bn from its initial public offering which is expected next year, Mr Li said in a speech.

His comments were the first official acknowledgement of the likely fundraising effort by China’s banks, although there has been widespread speculation about the amounts they will need to boost capital ratios.

Chinese banks extended Rmb9,210bn in new loans in the first 11 months of this year, far more than the average of Rmb3,000bn-4,000bn in recent years.

The lending boom came as the government rolled out a massive stimulus package to counter the effect of the global crisis.

Beijing has set a target of Rmb7,000bn-8,000bn in new bank loans for next year, according to people familiar with the latest policy.

With more than Rmb1,000bn of this year’s loans still unspent in the banking system the target in effect means that the Beijing government is planning to maintain lending at its current rate next year.

Despite the huge volume of lending this year, regulators believe the banking system is fundamentally sound although they remain wary of a re-emergence of non-performing loans, an official told the Financial Times.

In contrast to their western counterparts, China’s banks have emerged from the crisis in better shape than at any time since the country embarked on market reforms three decades ago, said Liao Min, director general of the China Banking Regulatory Commission General Office.

“Credit quality in general has improved and non-performing loans have reached their lowest level ever,” Mr Liao said. “By number and by nature, our banks are stronger and healthier than at any time in history.”

The ratio of non-performing loans at all China’s commercial banks fell to 1.6 per cent at the end of November, while the total outstanding level of bad loans fell below Rmb500bn for the first time in more than a decade.

Charlene Chu, an analyst at Fitch Ratings, said asset quality and profits had held steady. “But there has been deterioration this year in the amount of capital the banks have on hand to deal with shocks to the loan book,” she said.