Chinese banks will feel the pain of raising the money as investors fear bad loans

Chinese banks will feel the pain of raising the money as investors fear bad loans

BEIJING (Reuters) – Chinese banks are set to face headwinds in fund-raising next year as profit-minded investors cling to margins, expecting a wave of bad loans to hurt the sector and wipe out already low profit margins.

People walk across the CBD horizon on the day Chinese leaders explain their 14th five-year plan after the outbreak of the Coronavirus Disease (COVID-19) in Beijing, China, October 30, 2020. Reuters / Thomas Peter

The sector ended its worst annual performance in years after scrapping record provisions due to COVID-19 while Beijing urged banks to sacrifice profits to help the economy.

In the coming year as lenders end the burden on pandemic-related loans – which allow borrowers to withhold payments or pay lower interest – banks should boost their capital against loans that were not previously classified as ineffective.

Large and medium lenders also need to improve capital adequacy as required by global and local supervisory bodies.

Chinese banks raised 1.2 trillion yuan ($ 18 billion) in the first 11 months of the year, off the pace of 1.5 trillion yuan for the whole of 2019, according to data from Fitch Ratings.

The 26 listed banks may need to replenish at least 1.25 trillion yuan of capital in 2021, according to an estimate by Shenzhen-based brokerage firm Guosheng Securities.

“The pressure to raise capital for the entire banking industry remains very significant,” said Vivian Zio, Asia Pacific Director of Fitch Financial Institutions. “The largest banks in China will need to raise significant capital or loss-absorbing debt over the next few years.”

READ  Mise à jour: Steam supprime la ville inondée après avoir piraté le développeur de l'éditeur universitaire du jeu

The four largest banks – the Industrial and Commercial Bank of China, the Construction Bank of China, the Agricultural Bank of China and the Bank of China – face this loss-absorbing debt deficit of 4.7 trillion yuan by the end of 2024 to meet the requirements set by the Basel Accord. The headquarters of the Financial Stability Board, according to Fitch.

Under this scenario, Fitch assumes that risk weighted assets including loans will grow 8% annually.

The Group of 20 major economies adopted “overall capacity to absorb losses” in 2015 as a benchmark to help ensure that the world’s largest financial institutions have the resources needed for any restructuring while reducing support from public funds.

Small banks

But analysts say more than 4,000 small, unlisted banks in China have more severe financing needs, despite 200 billion yuan in special domestic government bonds this year aimed at helping recapitalize regional banks.

“Smaller banks will have a bigger gap,” said analyst Wang Jian of Guosen Securities.

Fundraising tools include second-tier bonds, big bank permanent bonds, public equity offerings, strategic capital injections, and government-led investments for smaller lenders.

Despite the range of options, banks face challenges in gaining investor interest.

“Small banks will struggle to gain recognition from investors,” said Wang Yifeng, an analyst at Everbright Securities.

Dai Zhifeng, an analyst at Zhongtai Securities, said that investors were lukewarm toward banks’ IPOs due to the poor performance of their shares.

Bank stocks on the mainland are down 6.5% this year, even as the broader China market rallied 22%.

READ  Les 30 meilleures critiques de Coussin Chaise Exterieur

Dai said concern about credit risk among smaller lenders, after the takeover of Baoshang Bank, undermined confidence in the capital instruments issued by regional banks.

At the end of fund-raising for retail sale, mainly through deposit products, large lenders will be preferred over regional lenders.

Commercial banks in urban and rural areas will have more difficulty attracting deposits due to weak customer base and regulatory restrictions on higher yield deposits.

(1 dollar = 6.5302 Chinese yuan)

(Reporting by Cheng Ling, Zhang Yan and Ryan Wu; edited by William Mallard

Nous serions ravis de connaître votre avis

Laisser un commentaire