Share sales will further erode Chinese bank profits

The biggest banks in China are likely to see further profit erosion as they prepare massive share sales to bolster capital after a lending splurge, Bloomberg reported, citing analysts. Shares of Chinese lenders, trading at the cheapest price-to-earnings valuations among global banks, are already constrained by rising bad loans, a faltering economy and prospects of more equity sales. “It’a a vicious cycle,” said Chen Xingyu, an analyst at Phillip Securities. “Unlike the biggest banks in US and Europe, Chinese banks are still run on a very primitive and capital-intensive business model of taking deposits and offering loans: That means they are always in need of capital replenishment.”