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Monday 30 November 2009
Banks seen raising billions in capital in coming years
Chinese banks, under government pressure to shore up their finances, are set to unleash a wave of capital raising worth billions of dollars that could strain equity markets but also spur innovation in debt instruments.
Banks seen raising billions in capital in coming years
Share sales could cause market overhang but spur debt innovation
Reuters 25 November 2009
(HONG KONG) Chinese banks, under government pressure to shore up their finances, are set to unleash a wave of capital raising worth billions of dollars that could strain equity markets but also spur innovation in debt instruments.
The banks could go to the market with a slew of new stock and bond offers as they look to raise as much as 300 billion yuan (S$60.86 billion) over the next few years, according to some estimates.
The move would follow a surge in bank lending in the first half of this year, encouraged by the central government’s four trillion yuan economic stimulus. But now, the regulator, worried about a lending bubble, is cautioning banks to ensure that their capital is adequate.
Three of the country’s top four listed banks, Bank of China, China Construction Bank and Bank of Communications have already started work on fund-raising proposals, Reuters quoted a source as saying on Monday.
Altogether five of China’s largest banks have submitted plans to regulators for raising money, four people with knowledge of the matter told Bloomberg.
The banks told the China Banking Regulatory Commission (CBRC) how they can bolster capital ratios after the watchdog evaluated their finances last week, the sources said.
Lenders were told to estimate potential deficits in 2010 based on their own loan forecasts and capital ratio targets, they said.
Bank shares fell in Hong Kong trading yesterday after Bank of China said that it was studying ‘various options’ to replenish capital.
The five lenders extended a record 4.7 trillion yuan of loans in the first nine months, driving China’s economic growth to an annual 8.9 per cent rate in the third quarter even as rivals worldwide reined in credit.
‘There’s no doubt there will be a massive wave of fund raising from Chinese banks, but the key question is when, where and how,’ said Fan Kunxiang, analyst at Haitong Securities Co.
‘If banks all rush to sell shares within a short period, it would unavoidably be a blow to the stock market.’
The Chinese lenders aren’t the only ones in Asia looking to raise capital. Japan’s banks, for instance, could be raising tens of billions of dollars to meet stricter capital rules.
Mitsubishi UFJ Financial Group, Japan’s top bank, said last week that it would raise US$11 billion to meet stricter capital rules.
In the latest wake-up call to lenders, China’s top banking regulator, Liu Mingkang, warned in an article published yesterday that banks need to protect themselves from credit risk caused by changes in the country’s industrial structure.
Analysts said that small and medium-sized lenders could be the first to feel the pinch as they lack the resources of larger lenders.
In a potential sign of things to come, mid-sized Industrial Bank said on Monday that it would raise up to US$2.64 billion in a rights issue to plug a capital shortfall.
Earlier this year, rivals Shanghai Pudong Development Bank and China Minsheng Banking Corp announced plans to raise a total of about 53 billion yuan via share sales.
Chinese banks must keep their capital adequacy ratio - a key measure of their ability to absorb losses - above 8 per cent by law. But regulators late last year urged small and mid-sized listed lenders to aim for 10 per cent or higher.
The China Banking Regulatory Commission has used various measures to tighten those rules this year and repeatedly warned against reckless lending.
Bank of China’s capital adequacy ratio stood at 11.6 per cent as at Sept 30, compared with 12.6 per cent for ICBC, China’s largest lender, and 12.1 per cent for China Construction Bank. All were well above the 8 per cent regulatory minimum.
The need for more capital could continue to weigh if the broader market cannot absorb the huge sums of new funds required.
‘The market has largely priced in expectations of fund-raisings by banks,’ said Wu Yonggang, analyst at Guotai Junan Securities. ‘But if regulators suddenly raise ratio requirements . . . all banks will be short of capital, and that would scare investors in the stock market.’
The looming pressure is already forcing market players to look at other ways of raising capital. Some of those options, including use of debt markets, could provide an opportunity for China to introduce innovative financial instruments, such as bonds with deferrable interest payments, said Liao Qiang, an analyst at Standard & Poor’s.
None of China’s dual-listed banks need new equity now, but there may be such a need over the next two to three years, Citigroup said in a Nov 19 report. Bank of China also said yesterday that it was studying various ways to raise capital but has no plans for now to do so.
‘I think big banks such as Bank of China and China Construction Bank are not in a hurry to raise capital, but it’s natural for them to start thinking about it,’ said Guotai’s Mr. Wu.
2 comments:
Banks seen raising billions in capital in coming years
Share sales could cause market overhang but spur debt innovation
Reuters
25 November 2009
(HONG KONG) Chinese banks, under government pressure to shore up their finances, are set to unleash a wave of capital raising worth billions of dollars that could strain equity markets but also spur innovation in debt instruments.
The banks could go to the market with a slew of new stock and bond offers as they look to raise as much as 300 billion yuan (S$60.86 billion) over the next few years, according to some estimates.
The move would follow a surge in bank lending in the first half of this year, encouraged by the central government’s four trillion yuan economic stimulus. But now, the regulator, worried about a lending bubble, is cautioning banks to ensure that their capital is adequate.
Three of the country’s top four listed banks, Bank of China, China Construction Bank and Bank of Communications have already started work on fund-raising proposals, Reuters quoted a source as saying on Monday.
Altogether five of China’s largest banks have submitted plans to regulators for raising money, four people with knowledge of the matter told Bloomberg.
The banks told the China Banking Regulatory Commission (CBRC) how they can bolster capital ratios after the watchdog evaluated their finances last week, the sources said.
Lenders were told to estimate potential deficits in 2010 based on their own loan forecasts and capital ratio targets, they said.
Bank shares fell in Hong Kong trading yesterday after Bank of China said that it was studying ‘various options’ to replenish capital.
The five lenders extended a record 4.7 trillion yuan of loans in the first nine months, driving China’s economic growth to an annual 8.9 per cent rate in the third quarter even as rivals worldwide reined in credit.
‘There’s no doubt there will be a massive wave of fund raising from Chinese banks, but the key question is when, where and how,’ said Fan Kunxiang, analyst at Haitong Securities Co.
‘If banks all rush to sell shares within a short period, it would unavoidably be a blow to the stock market.’
The Chinese lenders aren’t the only ones in Asia looking to raise capital. Japan’s banks, for instance, could be raising tens of billions of dollars to meet stricter capital rules.
Mitsubishi UFJ Financial Group, Japan’s top bank, said last week that it would raise US$11 billion to meet stricter capital rules.
In the latest wake-up call to lenders, China’s top banking regulator, Liu Mingkang, warned in an article published yesterday that banks need to protect themselves from credit risk caused by changes in the country’s industrial structure.
Analysts said that small and medium-sized lenders could be the first to feel the pinch as they lack the resources of larger lenders.
In a potential sign of things to come, mid-sized Industrial Bank said on Monday that it would raise up to US$2.64 billion in a rights issue to plug a capital shortfall.
Earlier this year, rivals Shanghai Pudong Development Bank and China Minsheng Banking Corp announced plans to raise a total of about 53 billion yuan via share sales.
Chinese banks must keep their capital adequacy ratio - a key measure of their ability to absorb losses - above 8 per cent by law. But regulators late last year urged small and mid-sized listed lenders to aim for 10 per cent or higher.
The China Banking Regulatory Commission has used various measures to tighten those rules this year and repeatedly warned against reckless lending.
Bank of China’s capital adequacy ratio stood at 11.6 per cent as at Sept 30, compared with 12.6 per cent for ICBC, China’s largest lender, and 12.1 per cent for China Construction Bank. All were well above the 8 per cent regulatory minimum.
The need for more capital could continue to weigh if the broader market cannot absorb the huge sums of new funds required.
‘The market has largely priced in expectations of fund-raisings by banks,’ said Wu Yonggang, analyst at Guotai Junan Securities. ‘But if regulators suddenly raise ratio requirements . . . all banks will be short of capital, and that would scare investors in the stock market.’
The looming pressure is already forcing market players to look at other ways of raising capital. Some of those options, including use of debt markets, could provide an opportunity for China to introduce innovative financial instruments, such as bonds with deferrable interest payments, said Liao Qiang, an analyst at Standard & Poor’s.
None of China’s dual-listed banks need new equity now, but there may be such a need over the next two to three years, Citigroup said in a Nov 19 report. Bank of China also said yesterday that it was studying various ways to raise capital but has no plans for now to do so.
‘I think big banks such as Bank of China and China Construction Bank are not in a hurry to raise capital, but it’s natural for them to start thinking about it,’ said Guotai’s Mr. Wu.
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