Chinese banks raise record-high $48b in Q1 to plug capital crunch

Banks have been allowed to issue perpetual bonds to improve solvency ratios.

Bloomberg reports that Chinese banks have raised a record-high $48b in Q1 through equity and debt offerings as part of an effort to boost their weakened balance sheets and respond to Bejing's call to lend more. 

Also read: Chinese banks struggle to strike balance between curbing risk and lending

The flurry of issuance has had banks reach deep into the fundraising toolbox including bonds that count as capital, the first-ever perpetual sold domestically by a Chinese lender, rarely-used convertible bonds and dollar-denominated debt.

The move comes as banks have been encouraged to step up lending to the credit-short private sector that has been hit hard by Beijing's deleveraging campaign. The government aims to ensure that SMEs will still enjoy lower funding costs and that state-owned commecial banks (SOCBs) will play a greater role by increasing lending to SMEs at a pace of 30% in 2019 from the current 28%, Chinese premier Li Keqiang said during the opening session of the 13th National People Congress (NPC).

Also read: Are Chinese banks put to risk as government calls to rev up lending?

To encourage lending to troubled SMEs whose ratio of problem loans to total is more than double for SME lending than the rest, regulators have been unveiling capital incentives to prod banks to unleash funds, Natixis said in an earlier report.

"Whilst the sticks are crystal clear, more carrots are being waved around. This is definitely necessary as banks know that there is a price to be paid for stretching the balance sheets and especially so for the private sector," Alicia Garcia-Herrero, chief economist at Natixis said in a report. 

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