Source: MNI    Published: 2024-11-6

By MNI

Beijing will likely issue CNY1 trillion in special treasuries to help replenish capital of China's six largest state-owned banks, aiming to raise their core tier-1 capital by 1 percentage point on average, which will increase their propensity to lend, boost the economy and help manage financial risks over the coming years, advisors and economists told MNI.

Authorities will likely prioritise the Bank of Communications and the Postal Saving Bank next year following central bank approval, those familiar with banking regulation told MNI, noting the People’s Bank of China will also need to increase interbank liquidity via open market operations, bond trading or reserve requirement ratio cuts to cushion the market following the increased special treasury issuance. 

The government’s significant fiscal stimulus meant it needed strong, capitalised banks to follow through with solid credit expansion, said Liu Xiaochun, deputy director of think-tank Shanghai Finance Institute. The lenders would also need to purchase at a considerable pace the additional bonds issued to help local governments resolve their debt risk, he added.

Large banks have likely suffered from increasing non-performing loans thanks to the economic slowdown, while mergers and acquisitions among small- and mid-sized banks have also pressured larger lenders’ capital, said Liu, also a former president of China Zheshang Bank.

The Ministry of Finance’s plan to replenish state-owned bank capital, revealed in October, not only represents the first time Beijing has injected large capital into its banking system since 2007, but also the first time since 1998 it has issued special treasuries to do so. The National People’s Congress Standing Committee meeting this week will discuss fiscal stimulus with details expected on Friday. (See MNI INTERVIEW2: China Fiscal Stimulus Seen Near 10% GDP)