China is set to begin re-capitalizing several of its largest banks in the coming months, following through on a broad stimulus package announced last year to support its struggling economy, according to sources familiar with the matter.
The government plans to inject at least 400 billion yuan ($55 billion) of fresh capital into an initial batch of state-owned banks, including Agricultural Bank of China Ltd. and Bank of Communications Co. The process could be completed by the end of June, though the specific amounts for each bank are still being finalized, the sources said.
In September, China’s banking regulator outlined a plan to replenish core tier-1 capital at the country’s top six state lenders, though no detailed explanation was provided at that time. The Ministry of Finance later announced that it would issue special sovereign bonds to fund the capital injections, aiming to strengthen banks’ ability to manage risks and enhance their lending capacity.
Overall, China could inject up to 1 trillion yuan into its largest banks, with funding primarily coming from the issuance of these special sovereign bonds, as reported by Bloomberg News last year.
Despite the top six banks having capital levels well above regulatory requirements, China is taking this step after years of implementing stimulus policies, such as mortgage rate cuts and reductions in key policy rates. The country’s banks, which have been integral to supporting the economy, are now grappling with declining profit margins, increasing bad debt, and challenges from a weaker economy.
Traditionally, Chinese banks have relied on retained profits and debt issuance to increase capital buffers. A direct capital injection from Beijing would mark the first such move since the global financial crisis of 2008.
Agricultural Bank of China and Bank of Communications saw gains in Hong Kong trading, with shares rising by 2.6% and 2.2%, respectively.
