China banks deal with capital hole after stimulus spurs lending

The recent lending surge by Chinese banks in response to monetary stimulus designed to support China’s slowing economy is also adding to the banks’ capital needs, by accelerating the expansion of their balance sheets, said the Financial Times. 

Listed Chinese banks will need to raise about $260 billion in fresh capital over the next three years as regulations force shadow-bank loans back on to balance sheets and global rules on systemically important groups impose extra requirements on the largest lenders. 

“The constraint on bank lending from capital adequacy requirements is making financing difficult and expensive for the real economy. So there’s an urgent need for banks to replenish capital,” said Bo Dikuo, president of Shanghai Chunda Asset Management.

Listed banks will need to raise RMB 1.74 trillion in regulatory capital over the next three years, excluding the amount they are expected to generate internally through retained earnings, according to an estimate by Central China Securities.