China’s banks are poised to raise tens of billions of dollars via preferred share issues in the coming months, as they look to boost capital ratios ahead of strict new regulations and a potential rise in bad loans.
Two of China’s big-four lenders – Agricultural Bank of China and Bank of China – have already announced plans to raise up to Rmb180bn ($29bn) combined through preferred share sales, following rule changes announced last month. Others are expected to follow.
Although Chinese banks appear to have adequate buffers in place, they have limited options for raising capital and face an increasingly uncertain future.
Preferred shares sit between the debt and equity sides of the capital structure, paying a fixed dividend like a bond, but with the potential to capture equity market gains. They convert to common stock if a bank’s capital ratio drops below a certain level. In effect, they are a bet that China’s banks will neither enjoy a large equity market rally nor suffer a serious crisis.
Unlike common equity, preferred shares are also open to funds with mandates that limit them to buying credit assets, and thus potentially give Chinese banks access to global debt investors once they look to issue such shares offshore.
However, “the need for capital is not the backbone of the story. Chinese banks are quite well capitalised,” says Dominique Jooris, head of credit capital markets at Goldman Sachs for Asia ex-Japan. But in addition to meeting new Basel III and mainland Chinese capital requirements, they want to make sure they can “add a cushion to the buffer”.
China’s regulators have set a strict timetable for meeting capital adequacy ratio targets, requiring the big four – AgBank, Bank of China, Industrial and Commercial Bank of China, and China Construction Bank – to have a tier-1 CAR of 9.5 per cent by 2018.
May Yan, banking analyst at Barclays, believes Chinese lenders will need to raise as much as Rmb1tn over the next several years through preferred share issues in order to meet those targets.
While some banks are already there, AgBank and Bank of China have some catching up to do. AgBank’s current preferred share issue plans would lift its tier-1 CAR from 9.25 per cent to 10.08 per cent, according to figures from brokerage CLSA.
中国“四大”银行中的两家——中国农业银行(ABC)和中国银行(Bank of China)——已宣布计划，将通过发行优先股总计融资1800亿元人民币(合290亿美元)。预计其他银行将仿效此举。上月，中国宣布调整银行资本充足率标准。
然而，高盛(Goldman Sachs)亚洲（除日本以外）信贷资本市场主管多米尼克?尤里斯(Dominique Jooris)认为，最新一轮融资，“资金需求并非重点。中国各银行的资本状况非常良好”。他认为，除了满足《巴塞尔协议III》(Basel III)以及中国内地资本金要求之外，这些银行还希望确保能够“给（资本）缓冲增加一层保护”。