(Yicai) Aug. 21 -- New policies and measures proposed by China’s securities regulator to boost the vitality, efficiency, and attractiveness of the stock market will likely limit the ability of listed banks to refinance, according to industry insiders.

The China Securities Regulatory Commission vowed on Aug. 18 to restrict the refinancing activities of listed companies whose share price is lower than their initial public offering price or that have a price-to-book ratio of less than one.

Twelve of China’s 42 banking stocks closed below their IPO pricing on Aug. 18, and their average price-to-book ratio was about 0.58, with only one higher than one and five below 0.4.

Listed commercial lenders will face greater refinancing challenges once the new policies are implemented because of the pressure to supplement capital, insiders told Yicai.

Banks usually go for big fundraisers, a senior banking sector researcher at a ratings agency noted, adding that in the current market environment, it will not be easy for them to gain the regulator’s approval.

For example, a staffer at China Minsheng Bank told Yicai that the lender terminated its plan to issue CNY50 billion (USD6.9 billion) of convertible bonds on Aug. 11 partially because the amount was too large and the secondary market’s ability to absorb it is limited.

If market enthusiasm and stock prices are low, refinancing would bear very costly for banks and displease the original shareholders, especially state-owned investors, another banking analyst noted.

New Channels

Banks can replenish capital through internal or external channels. External channels include share allocations and convertible bonds. After the new policies come in, banks will likely depend more on internal channels such as retained profits earned from business operations, another researcher said.

But increasing profits is very hard, and could potentially force listed banks to slash dividend payments to shareholders, which has been the standard practice in the past. But that could further weigh on their stock prices, a source at a joint stock bank pointed out.

So the key is to boost profitability. But as interest rates were cut this week and last, commercial banks have no option but to lower deposit rates further in the near future, according to analysts interviewed by Yicai.

Still, the banks external financing channels are not completely shut down by the CSRC’s new policy, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance.

Lenders can still raise funds by issuing bonds in the interbank market, as the financing activities of banks are regulated mainly by the PBOC and the NAFR rather than the CSRC, Dong added.

Chinese stocks, especially banks’ shares, have been depressed for two and half years, ever since the country’s main stock indexes peaked in February 2021. The benchmark Shenwan Hongyuan Bank Index has fallen about 30 percent since then, compared with a 17 percent decline in the Shanghai Composite Index over the same period.

Editor: Tang Shihua, Futura Costaglione