Return of private placements boost Chinese regional banks' capital

They allow for tailored government participation in bank recapitalisation.

Chinese regional banks will greatly benefit from the resumption of equity raising via private placements, particularly in terms of capital and bailout means, according to a Moody’s Investors Service.

The resumption allows these banks to bolster their capital positions, said analyst Ray Heung, as private placements open the doors for tailored government participation in recapitalisation of banks.

In May, the China Securities and Regulatory Commission (CSRC) resumed the approval process and has greenlighted 13 cases thus far. “We expect a pick-up through the rest of the year as authorities process waiting applications and as financial sentiment improves,” Heung added.

The government gains from using private placements to anchor regional banks as the latter are vital credit providers to domestic economies and private MSMEs. It also allows for a differentiated approach to bank rehabilitation, the report said.

Moreover, several banks are bundling their equity raising with the sales of nonperforming loans Whilst such sales will lower banks' credit costs, the resultant risk for local government-related entities could lead to bleak outlooks and potential moral hazards, the report concluded.