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China Asks Its Banks to Slow Down

Chinese banking regulators are putting pressure on the country’s banks to raise more capital and temper their rapid growth in lending, in the clearest signs yet of official concern about the sustainability of the nation’s credit boom, senior Chinese bankers said Monday.

U.S. and European officials have also pressed their banks to shore up their finances in recent months, but the reasons behind the Chinese regulators’ capital-raising push are very different. In some ways, the regulatory pressure reflects the robustness of the Chinese economy, in contrast with lingering economic weakness in the West.

China's National Flag
China's National Flag

Western regulators have put pressure on the banks they oversee to raise money, often through the sale of overseas units and other assets, in order to rebuild capital bases depleted by losses on mortgage-backed securities and other investments. Western banks have moved to raise the money even as they have slowed their issuance of new loans, which has helped hold up their capital as a percentage of assets.

Regulators in Beijing have a different concern, Chinese bankers said. As bank lending has soared this year, banks’ capital has risen less quickly, so the banks’ capital adequacy ratios have begun to slip.

While China’s regulators are comfortable with current capital adequacy levels at the nation’s major banks, they want them to have plenty of capital to be able to continue lending briskly next year without difficulty if needed to sustain economic growth, bankers said.

Under pressure from the government to offset the drag on the Chinese economy from plunging exports, Chinese banks lent more money in the first seven months of this year than in the two previous years combined. They have only gradually begun to moderate their pace of new loans this autumn.

Reuters, citing a source, reported Monday that the China Banking Regulatory Commission was asking big banks to raise their capital adequacy ratios to 13 percent by the end of next year, compared to a broad industry average of 11 percent in China now. But the commission denied this in a statement on its Web site on Monday evening, saying that it had not set a 13 percent target and had not imposed limits on lending.

The commission did say, however, that banks were being discouraged from engaging in any extra push to lend money before the end of the year.

A senior Chinese banker, who asked not to be identified because of the sensitivity of the subject, said late Monday afternoon that he was not aware of new asset ratios being required by regulators. But he added that the general sentiment among regulators was to encourage banks to raise more capital and to show moderation in the pace of lending.

Industrial Bank, based in Fujian Province, announced Monday that it planned to raise 18 billion yuan, or $2.6 billion, in a share sale next year.

China Minsheng Banking raised $3.8 billion through the sale of shares in Hong Kong last week, while China Merchants Bank has said that it intends to raise 22 billion yuan through a rights offering by the end of this year.

Chinese banks’ capital adequacy ratios look high by comparison with the ratios at Western banks, many of which are struggling to meet an international standard of 8 percent. But the Chinese banks’ ratios are not necessarily directly comparable, bank analysts caution, because Chinese banks are sometimes slow to acknowledge that delinquent loans may not be collectible.

A big worry among Chinese policy makers lies in whether Chinese banks have already lent too much to real estate developers for residential projects and to municipal and provincial government agencies for infrastructure projects. The Financial News, a newspaper published by the People’s Bank of China, the country’s central bank, said Monday that if China did not curtail its economic stimulus policies, “property prices and the market may go out of control.”

BNP Paribas said in a research note to clients last week that China's 11 largest publicly traded banks would need to raise 300 billion yuan, or $44 billion, to offset continued strong growth in lending next year.