(Yicai Global) June 4 -- Commercial banks in China are resorting to issuing bonds to raise money as they struggle to get approval to go public, according to the chief financial analyst at Golden Credit Rating International.

The scale of perpetual and second-tier capital bonds issued by commercial banks has increased massively thanks to encouragement from regulators, Xu Chengyuan told Yicai Global, adding that more and more smaller banks are issuing perps, which have become an important tool in ensuring they have adequate capital.

There are nearly 20 banks in China stuck in the initial public offering process, and the country has not greenlit a listing application for any lenders so far this year. Successful IPOs in the banking sector peaked last year, with eight listing in Shanghai or Shenzhen, including the Postal Savings Bank, and two regional commercial banks floating shares in Hong Kong.

"The current poor stock market environment and the fact that bank stocks have fallen below their net worth have made it more difficult to finance through private placements," Xu added. Many listed banks have not attempted to make private placements, with just five smaller lenders announcing such plans since the beginning of this year.

One industry analyst told Yicai Global the slowdown is a result of the Covid-19 pandemic.

“Banks are struggling with their non-performing assets,” the analyst said. “There has been a sharp rise in non-performing loans from the catering, accommodation, real estate, cultural and entertainment industries, and personal clients will be struggling to pay off credit cards because they’re losing out on income. This gives a pretty bleak outlook for bank stocks.”

China’s banking sector is under immense pressure to secure quality assets and lenders have not ruled out the possibility of stagnant or declining profits, he added, saying this and the price-to-book ratio all affect potential investors’ interest in such IPOs.

Many of China’s listed banks have had a PB ratio of less than half for some time, and the market price of 46 of the 51 listed lenders is currently below their net asset values.

Editor: Tang Shihua