BEIJING (Reuters) – Chinese banks are expected to face fundraising next year as profit-conscious investors cling to the margins, waiting for a wave of bad loans to affect the sector and erode margins already declining.
The sector is ending its worst annual performance in years after setting aside record provisions due to COVID-19, while Beijing urged banks to sacrifice profits to help the economy.
Next year, when lenders end the absence of pandemic-related loans – which allow borrowers to suspend payments or pay less in interest – banks will have to bolster their capital against loans that were not previously classified as pandemics. to incomplete.
Large and medium lenders also need to improve their capital adequacy, as required by global and national watchdogs.
Chinese banks raised 1.2 trillion yuan ($ 18 billion) in the first 11 months of the year, off the 1.5 trillion yuan rate throughout 2019, according to Fitch Ratings data.
The 26 listed banks may need to replenish at least 1.25 trillion yuan in capital by 2021, according to estimates by Shenzhen-based Guosheng Securities.
“The pressure on raising capital for the entire banking industry remains quite large,” said Vivian Xue, director of Asia-Pacific financial institutions at Fitch. “China’s largest banks will have to raise substantial capital or loss-absorbing debts over the next few years.”
The four largest: the Industrial and Commercial Bank of China, the Construction Bank of China, the Agricultural Bank of China and the Bank of China, face a deficit that absorbs losses of 4.7 trillion of yuan by the end of 2024 to meet the requirements set by Basel. based on the Financial Stability Board, according to Fitch.
On stage, Fitch assumes that risk-weighted assets, including loans, will grow 8% annually.
The Group of 20 major economies adopted “total loss-absorbing capacity” in 2015 as a standard to help ensure that the world’s largest financial institutions have the resources needed for any restructuring and minimize support for public funds. .
SMALLER BANKS
But China’s more than 4,000 unlisted Chinese banks have sharper funding needs, analysts say, despite the 200 billion yuan of local government special bonds this year intended to help recapitalize regional banks.
“Smaller banks will have a bigger gap,” Guosen Securities analyst Wang Jian said.
Fundraising tools include second-tier bonds, standing bonds for larger banks, public equity offerings, strategic capital injections, and government-led investments for smaller lenders.
Despite the variety of options, banks face challenges in gaining interest from investors.
“Small banks will have trouble gaining investor recognition,” analyst Wang Yifeng told Everbright Securities.
Investors have been warm in the face of bank UCIs due to their low stock performance, said Dai Zhifeng, an analyst at Zhongtai Securities.
Mainland banking shares have fallen 6.5% this year, although China’s broader market rose 22%.
Concern over credit risks from smaller lenders, following the confiscation of Baoshang Bank, has also cooled confidence in capital instruments issued by regional banks, Dai said.
At the end of fundraising, mainly through deposit products, large lenders will be favored over regional ones.
Urban and rural commercial banks will have more difficulty attracting deposits due to the small customer base and regulatory measures for high-yield deposits.
(1 $ = 6.5302 Chinese yuan renminbi)
Reports by Cheng Leng, Zhang Yan and Ryan Woo; Edited by William Mallard