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China's bank industry expecting capital shortfall
19 Feb, 2012 09:36:34
BEIJING (Asia Pulse) - China's banking industry is expected to suffer from a total capital shortfall of over 500 billion yuan (US$79.35 billion) in 2012-2013 as endogenous capital growth in most banks is still insufficient to meet the demand though the industry sticks the annual profit growth at above 16 per cent.
Massive refinancing plans by listed banks and non-bank financial institutions have been heard very often recently as they are keen to raise more money to supplement their capital shortage.

The Bank of Beijing announced recently that it had got the nod from the China Securities Regulatory Commission (CSRC), the securities watchdog, for an 11.8 billion yuan worth direct placement plan.

The Board of Directors of the China CITIC Bank also passed a 20-billion-yuan sub-bonds plan in mid-January this year.

In early February, the Bank of Communications announced its plan to make an H-share additional placement of 50 billion yuan while the China Everbright Bank has got the green light to issue 6.7 billion yuan of sub-bonds.

Meanwhile, China's insurance giant China Ping'an Insurance Co., Ltd's 26-billion-yuan A-share convertible bonds plan, the Northeast Securities' 4-billion-yuan additional placement plan, the Sealand Securities' 5-billion-yuan additional placement plan and Shaanxi International Turst Co., Ltd.'s 2.1-billion-yuan additional placement plan have also been put on the stage.

Besides, a few financial institutions' financing plans which were announced in 2011 have been postponed due to bearish market conditions but are expected to be restarted in 2012.

China Minsheng Banking Corporation has shifted its refinancing plan from direct placement plan to issue 20 billion yuan of RMB convertible bonds and make an additional placement of no more than 1.651 billion H shares with the total capital to be raised up to some 29 billion yuan.

Other delayed financing plans also include China Merchants Bank's 35-billion-yuan A+H placement and the China Construction Bank's 40-billion-yuan sub-bonds plan.

China Huijin Investment Ltd, a state-owned investment body, has allowed three top banks, namely the Industrial and Commercial Bank of China, the Bank of China and CCB to reduce their rate of dividend to 35 per cent though the CSRC President Guo Shuqing urges higher dividend payment to ensure investment yield.

Huijin's decision is aiming to help the banks replenish their capital shortage with the preserved money, said analysts.

The hundreds of billions of capital shortage in banks are mainly because of mounting loans supply and stricter supervisory requirement for banks, which will further beef up banks' financing activities to fill in their capital gap in two years, said a source close to the China Banking Regulatory Commission (CBRC).

As preliminarily estimated by the UBS Securities, the total capital shortage of the banking industry is expected to hit 220.7 billion yuan in 2012 and 295.3 billion yuan in 2013, in which the BOC, the Agricultural Bank of China (SSE:601288), the Bank of Communications and the Industrial Bank (SSE:601166) may be the main victims with an expected shortage of 13.8 billion yuan, 38.6 billion yuan, 16.5 billion yuan and 9.1 billion yuan respectively.

Although the accumulation of endogenous capitals will replenish the capitals shortage in the short term, it is still unlikely to cover the overall gap, said Li Yamin.

The CBRC source unveiled that the China Banking Regulatory Commission is expected to solicit opinions for the Guidelines on Implementation of New Capital Agreement for China's Banking Industry in the first half of 2012, which was originally launched in 2007, but unlikely to loose the tighter supervisory requirement for banks.

The weighed average capital adequacy rate of the listed bank is at 12.2 per cent at present with the core capital adequacy rate at 9.7 per cent. The weighed average capital adequacy rate and the core capital adequacy rate are expected to fall to 10.7 per cent and 8.5 per cent in 2012 if both the bank's total asset and the M2 growing at 14 per cent this year, said China International Capital Corporation.

However, under the new rules, the minimum capital adequacy rate is stipulated at 10.5 per cent to 11.5 per cent.

Meanwhile, the banks are keen to further expand their loan offers in 2012 so as to earn more profits from the so-called "windfall" interest margin. The interest margin, which is 3.06 per cent, at present, is the main profit source for Chinese banks, much higher than some 1 per cent in advanced economies.

The fast increase of loans will surely lead to capital shortage.

Chen Zhihua, an analyst of Changjiang Securities, forecast that the banking industry will offer an actual amount of 8.4 trillion yuan in loans in 2012.


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