Small Chinese Banks Rush to Boost Capital to Control Risks
Guo Haoyi
DATE:  Aug 10 2022
/ SOURCE:  Yicai
Small Chinese Banks Rush to Boost Capital to Control Risks Small Chinese Banks Rush to Boost Capital to Control Risks

(Yicai Global) Aug. 10 -- Small and medium-sized banks in China have been scrambling to increase their capital this year to improve their financial health.

In the past two years, the economic downturn caused by the pandemic has made small and medium-sized banks' demand for external capital more urgent, Wang Hongying, director of Hong Kong-based Institution of Financial Derivatives of China, said to Yicai Global.

The main reason for these lenders to replenish their capital is to better comply with regulatory requirements and to enhance their ability to prevent risks, said Wang Shiqiang, senior researcher at the IceKredit Research Institute. But it is more difficult as they need to establish multiple channels to do so, he added.

Since July, many small and medium-sized banks have been allowed to change their registered capital. Some of the means of financial improvement have been bond issuance, mergers, and restructuring.

Several banks have resorted to bonds. Commercial lenders in China have issued more than CNY1.2 trillion (USD177.6 billion) of bonds this year, an increase of nearly 40 percent over the same period of last year, according to Wind data.

However, the main means of capital increase for these banks are converted profit and private placement as investors have doubts about the profitability and risk control of small-scale lenders, Wang Hongying said.

The trend is showing in different regions. On July 12, Hengshui Bank's CNY6 billion (USD890 million) capital increase was approved, increasing its registered capital to CNY8.8 billion.

On Aug. 1, Ningxia Huanghe Rural Commercial Bank hiked its capital in Ningxia Pingluo Rural Commercial Bank. On Aug. 5, Zhuhai-Based China Resources Bank issued a capital increase announcement on the Shenzhen United Property Rights Exchange, raising about CNY17.2 billion (USD255 billion).

Regulators in Jiangxi, Yunnan, and Zhejiang provinces have given the green light to more than 25 lenders to boost their registered capital by converting profits, according to the website of the China Banking Regulatory Commission.

Small and medium-sized banks need to maintain a balance between attracting capital and operations while improving the efficiency of capital use and risk control, Wang Hongying concluded.

Editors: Shi Yi, Emmi Laine

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Keywords:   China Resource Bank