China signals aimed at easing banking concerns

By Doug Young and Aileen Wang

BEIJING (BestGrowthStock) – China’s banks have reined in lending to more sustainable levels, as some that overextended themselves during a 2009 government-backed lending binge raise capital to put themselves back on solid footing, according to major industry players.

The nation’s top regulator and executives at two of its four top banks offered comments on Friday aimed at easing concerns that troubles could be looming for China’s banking sector, as top officials met for the China’s National People’s Congress in Beijing.

Liu Mingkang, chairman of the China Banking Regulatory Commission, said the pace of bank lending has stabilized and that banks’ loan books are now safe and sound, as a number get set to raise new funds to bolster their balance sheets.

“I don’t think there is any problem, and the capital market is very cooperative,” said Liu, responding to questions about the flurry of recent fundraising plans.

Liu added that China will introduce additional capital requirements on banks if the economy overheats, in what would become the latest in an ongoing series of measures to rein in lending.

On the eve of China’s New Year holiday last month, the People’s Bank of China raised banks’ required reserve level for the second time this year, sending clear messages to banks that it wants more reasonable bank lending and it is paying close attention to inflation.

Chinese banks made a record 9.6 trillion yuan ($1.406 trillion) in new loans last year, fuelling concerns that they were sowing the seeds of a new crop of bad debts down the road.

Liu made his comments as the CBRC’s Shenzhen branch punished seven banks for making 13.4 million yuan ($1.96 million) in loans that were misused for stock investments, and instructed them to immediately recall the credit, according to a report on Thursday in the China Business News.

Jitters about potential woes have weighed on Chinese banking shares this year, with Hong Kong shares of China’s top three listed lenders all down 13 percent or more in the last three months, compared with an 8 percent decline for the broader Hang Seng Index (.HSI: ).

TOP LENDER IN GOOD SHAPE

The nation’s biggest lender, ICBC (1398.HK: ) (601398.SS: ), said on Friday it is not facing pressure to raise new capital, even as many of its peers announce plans for new fundraising to bolster their balance sheets.

Speaking on the sidelines of the NPC opening, Industrial and Commercial Bank of China President Yang Kaisheng said the bank’s capital adequacy ratio (CAR) now stands at about 12 percent, versus a government mandated minimum of 11 percent.

“We don’t see any pressure recently for fundraising,” said Yang, adding ICBC expects to see its non-performing loan (NPL) ratio continue to go down this year.

The CBRC has been pressing lenders to replenish their capital base after last year’s lending surge, with several banks now in the process of raising fresh equity or selling bonds.

Bank of China (3988.HK: )(601988.SS: ), China’s fourth largest lender, said on Thursday it will issue 24.93 billion yuan in 15-year subordinated bonds next week.

China Merchants Bank (3968.HK: )(600036.SS: ) is launching a $3.2 billion rights issue, but this week said it should require no more capital raising for at least the next three years after that.

Bank of Communications (BoCom) (3328.HK: ) (601328.SS: ), China’s fifth-largest lender, said last month it also plans to raise as much as 42 billion yuan ($6.1 billion) via a rights issue in Shanghai and Hong Kong to bolster capital and support expansion.

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(Additional reporting by Langi Chiang and Samuel Shen; Editing by Ken Wills)

China signals aimed at easing banking concerns