Bank of China Considering Raising Funds for Boosting Supplementary Capital

Bank of China Considering Raising Funds for Boosting Supplementary Capital

Bank of China Ltd, the Asian powerhouse's third biggest lending bank according to market value, has brought to light that it may consider raising new funds for the betterment of the bank's non-core capital, if the increased regulatory policies put limits on lenders.

President Li Lihui today said that the lurking enforcement of a new requirement by the country's banking supervisory body, would affect Bank of China's capital ratio in an adverse manner.

After a record high credit growth in 2008 and 2009, Chinese banks sold convertible bonds and stocks, and gathered $72 billion through it in 2010. On February 23 last month, the China Banking Regulatory Commission announced that it is in consideration of the endorsement of new capital regulations, derived from the contents of Basel III agreement.

At the National People's Congress today, Li said that according to their estimates, the growth in institutional lending and social financing will be less than last year. He also shared that the Chinese central bank's ratio and regulatory policies are placing sizeable restrictions on banks. Li also voiced that selling shares in order to boost its core capital is not high on Bank of China's agenda. He didn't disclose any more details about the fund raising process being considered by the bank, whose tier-one core capital ratio at the end of September 2010 was at 9.35%, while its overall capital ratio was slightly higher at 11.73%.

An undisclosed source said in January that upon being assessed as possessing excessive credit growth, the Chinese lenders could face an total capital adequacy ratio, which can be as high as 14%. The anonymous source has also said that other banks with usual credit growth would have to keep their ratio at 13%. The current minimum ratio for major banks stands at 11.5%. Other banks such as Agricultural Bank of China Ltd and China Minsheng Banking Corp have already decided to sell shares worth 80 billion Yuan, and local currency amounting to 70 billion Yuan.

Earlier today, Chairman Dong Wenbiao said that Minsheng Bank intends to let its share sale go through in summer 2011. The disclosure follows February's statement by the bank which announced that it would gather 1.65 Yuan through the sale of new shares in Hong Kong, and 20 billion Yuan from selling convertible bond in the Shanghai market.

According to Bank of China's Li, they gave out loans of 620 billion Yuan in 2010, but matching that figure might not be possible this year. Similarly, Industrial & Commercial Bank of China Ltd's president Yang Kaisheng said that they are also aiming for a slower lending rate this year as compared to 2010.

Li expressed his satisfaction with Bank of China's lending habits of the ongoing year so far, saying that they plan to lend as much as 40% of 2011's target with in within Q1 of 2011.

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