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Banks, insurance firms to boost capital
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CHINESE banks and insurance companies will embark on a fundraising drive over the coming years to meet stricter capital requirements, Moody’s Investors Service said yesterday.
The 11 Chinese banks that Moody’s has rated, including the five largest state-owned banks, have already raised 350 billion yuan (US$56.6 billion) out of the total planned 705 billion yuan, the rating agency said.
The capital initiative is part of the banks’ efforts to meet the elevated risk management and capital requirement introduced by the China Banking Regulatory Commission to meet the global standard known as the Basel III that aims to contain risks in the financial sector.
Banks are allowed to boost their capital gradually during a transitional period till the end of 2018. Most Chinese banks have met the requirements so far but fundraising pressure will be felt because of banks’ business expansion and gradual tightening of the rules in the coming years.
Its data showed that the Agricultural Bank of China, Shanghai Pudong Development Bank, Ping An Bank and China Guangfa Bank are on the verge of missing regulatory requirements by 2019 if they don’t speed up fundraising.
Banks will most typically replenish capital through secondary bonds issuance, said Christine Kuo, senior credit officer for financial institutions in Asia-Pacific at Moody’s.
For the insurance sector, a new risk-based solvency system will likely to be implemented in 2016, forcing insurers, especially smaller ones, to replenish capital in the next a few years, Moody’s said.
The insurance companies will adapt to the new rule in 2015. The new rules will force insurance companies to increase holding of long-term assets, develop more long-term insurance products, and comply with market orders more strictly.
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