More funds to meet firmer Tier 1 rule
Source: Bloomberg News |
April 14, 2011, Thursday
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Print Edition
Print Edition
CHINESE banks may have to raise about 860 billion yuan (US$131 billion) of equity through 2016 to meet stricter capital rules, according to estimates from the industry regulator, a person with knowledge of the matter said yesterday.
Lenders are likely to need an additional 1.26 trillion yuan in supplementary capital over the six years, the person said, declining to be named because the calculations aren't public. The estimates, compiled in January, assume economic growth of 8 percent a year and 15 percent credit expansion, the person said.
Chinese lenders, including the Industrial and Commercial Bank of China Ltd, sold a combined US$70 billion of shares last year after record credit expansion fueled concern that their assets might be eroded by bad debts. Banks' dependence on loan growth to increase profits means they'll likely have to raise more equity capital, according to Fitch Ratings.
"Capital erosion is a long-term issue facing Chinese banks because they don't really have the motivation to reduce reliance on loan expansion," said Wen Chunling, a Beijing-based analyst at Fitch. "The focus of China's rules is to ensure that banks arm themselves with abundant capital to be well-prepared for a crisis, so that the cost of any government bailout would be minimized."
China's banking regulator has drafted rules forcing banks to have Tier 1 capital ratios of at least 8.5 percent by the end of 2016, a person with knowledge of the matter said in January. The nation's lenders had an average Tier 1 ratio of 10.1 percent at the end of last year, according to the watchdog.
That's below the average 12.3 percent among the world's 100 largest banks by market value, according to data compiled by Bloomberg News.
The estimates for funding requirements to be met through stock sales account for about 13 percent of the US$1 trillion combined market value of China's 17 publicly-traded lenders, according to data compiled by Bloomberg News.
The forecasts don't apply to so-called policy lenders like China Development Bank Corp and Export-Import Bank of China, according to the person.
China's banking regulator said it has drafted a plan to implement global rules on capital requirements.
"At present, the Regulation on the Management of Commercial Banks' Capital Adequacy Ratio is still being revised," the China Banking Regulatory Commission said in an e-mailed response to questions. "After its official publication, each commercial bank will - based on their own operating conditions - estimate and decide on the method, pace and amount of fundraising."
Lenders are likely to need an additional 1.26 trillion yuan in supplementary capital over the six years, the person said, declining to be named because the calculations aren't public. The estimates, compiled in January, assume economic growth of 8 percent a year and 15 percent credit expansion, the person said.
Chinese lenders, including the Industrial and Commercial Bank of China Ltd, sold a combined US$70 billion of shares last year after record credit expansion fueled concern that their assets might be eroded by bad debts. Banks' dependence on loan growth to increase profits means they'll likely have to raise more equity capital, according to Fitch Ratings.
"Capital erosion is a long-term issue facing Chinese banks because they don't really have the motivation to reduce reliance on loan expansion," said Wen Chunling, a Beijing-based analyst at Fitch. "The focus of China's rules is to ensure that banks arm themselves with abundant capital to be well-prepared for a crisis, so that the cost of any government bailout would be minimized."
China's banking regulator has drafted rules forcing banks to have Tier 1 capital ratios of at least 8.5 percent by the end of 2016, a person with knowledge of the matter said in January. The nation's lenders had an average Tier 1 ratio of 10.1 percent at the end of last year, according to the watchdog.
That's below the average 12.3 percent among the world's 100 largest banks by market value, according to data compiled by Bloomberg News.
The estimates for funding requirements to be met through stock sales account for about 13 percent of the US$1 trillion combined market value of China's 17 publicly-traded lenders, according to data compiled by Bloomberg News.
The forecasts don't apply to so-called policy lenders like China Development Bank Corp and Export-Import Bank of China, according to the person.
China's banking regulator said it has drafted a plan to implement global rules on capital requirements.
"At present, the Regulation on the Management of Commercial Banks' Capital Adequacy Ratio is still being revised," the China Banking Regulatory Commission said in an e-mailed response to questions. "After its official publication, each commercial bank will - based on their own operating conditions - estimate and decide on the method, pace and amount of fundraising."
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