China Studying Plans to Boost Bank Capital Amid Lending Push

(Bloomberg) -- Chinese authorities are studying plans to help banks replenish capital as they look to continue with their crackdown on financial risk without hurting credit growth.

Key Insights

• The move to promote sales of perpetual bonds as soon as possible comes as new regulations on asset management force banks to absorb off-balance-sheet debts.
• Swelling soured loans and a slump in share prices are making it harder for banks to raise money.
• Stronger capital buffers also put the banks in a position to increase lending to private companies and help meet the government’s vow to support the struggling sector.

Analyst Reactions

• Banks will face substantial capital constraints next year as the new rules will compel them to move off-balance-sheet debt onto their books, which may increase bad debt and write-offs, said Wang Yifeng, a researcher at China Minsheng Bank.
• Perpetual bonds and preferred shares are both tools to replenish tier one capital, said Guo Shi, director of the bond financing department at Haitong Securities Co. While the securities regulator has been approving the former, the central bank’s push for the latter helps banks diversify funding channels.

More Details

• Financial Stability and Development Committee met on Tuesday to study the plans, according to a statement posted on the People’s Bank of China website Wednesday
• Read: China to Designate More Institutions as Too-Big-to-Fail

--With assistance from Russell Ward.

To contact Bloomberg News staff for this story: Evelyn Yu in Shanghai at yyu263@bloomberg.net;Xize Kang in Beijing at xkang7@bloomberg.net

To contact the editors responsible for this story: Sam Mamudi at smamudi@bloomberg.net, Jeanette Rodrigues, Charlie Zhu

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With assistance from Bloomberg