According to Bloomberg, China plans to add $1 trillion yuan ($142 billion) to its biggest state banks by issuing new special sovereign bonds to strengthen them against the weakening economy. However, the details are not yet public and are subject to change.
Bloomberg further mentions that “China is rushing to replenish its banks — even though the top six have capital levels that far exceed requirements — after unveiling broad reductions to mortgage rates and slashing key policy rates to revive the economy” It also stated, “Their average core tier 1 capital adequacy ratio has fallen slightly to 11.77% at the end of June, but remains above the 8.5% level required for China’s systemically important banks.”
The six major banks, including the Industrial & Commercial Bank of China and Bank of China, face declining margins, shrinking profits, and rising bad debt. Meanwhile, Postal Savings Bank and Agricultural Bank have relied on retained profits for capital growth.
Also Read: The Great Wall of Investment: China’s Global Infrastructure Dominance
Major banks in China are now facing increasing pressure from regulators to provide cheaper loans to risky borrowers, including real estate developers, homeowners, and local government financing vehicles. Moreover, the regulators forced some of these banks to pay their first-ever interim dividends to help boost the stock market, even though their profits and margins were decreasing.
The combined profits for China’s commercial lenders just rose—a mere 0.4% increase, which is the slowest pace since 2020. The industry’s net interest margins have also decreased, with a record low of 1.54% at the end of June.
