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Refinancing urgent for some listed banks

By Xu Shenglan (chinadaily.com.cn)
Updated: 2008-11-19 14:32

A rumor that small and medium-sized commercial banks' capital adequacy ratio (CAR) would remain at 10 percent has been confirmed. China Minsheng Banking Corp, the nation's first privately owned bank, recently announced that as the nation's regulator raises the minimum capital ratio, it plans to plug the shortfall with hybrid bonds.

This new requirement had become a part of the bank's strategic planning, and the "small and medium-sized banks" include not only the regional urban and rural banks, but also China Minsheng Bank, Shanghai Pudong Development Bank (PDB), Shenzhen Development Bank and other national shareholding commercial banks.

Among the 10 listed "small and medium-sized banks", the CAR of Bank of Ningbo, Bank of Nanjing and Bank of Beijing meet the new requirement. Huaxia Bank has just replenished its core capital by 11.56 billion yuan through high premium directional add-issuance. Industrial Bank raised its capital ratio to 11.05 percent by selling hybrid bonds in August. CITIC Bank has been maintaining a high capital ratio of 14.66 percent in the third quarter. The adequacy ratio of capital and core capital of China Merchants Bank reached 12.82 percent and 8 percent respectively, while the two figures for the Bank of Communication are 13.77 percent and 9.79 percent.

Shenzhen Development Bank had a 0.5-percentage-point gap to meet the new requirement after it issued 1.5 billion yuan subordinated bonds at the end of October. The adequacy ratio of capital and core capital of PDB are 8.47 percent and 5.17 percent respectively, which should be raised to a higher level.

Commercial banks can also raise the CAR through reducing dividends, provision coverage and risk-weighted assets' growth. However, cutting the provision coverage is only suitable for China Merchants Bank and PDB, which have a higher coverage rate, and reducing risk-weighted assets will affect banks' business expansion. Moreover, the China Banking Regulatory Commission may adopt stricter methods to calculate net capital.