China banks furnish capital raising schemes to regulator

Sources say country's top banks submitted plans of replenishing capital after they have lent $688 billion.

The China Banking Regulatory Commission evaluated the finances of Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd., Agricultural Bank of China and Bank of Communications Ltd. last week, the four sources said, declining to be identified. Lenders were told to estimate potential capital shortfalls in 2010 based on their own lending forecasts and capital ratio targets for the year, and to make plans to plug the deficits, they said.

The five banks extended a record 4.7 trillion yuan ($688 billion) of loans in the first nine months, even as lenders worldwide reined in credit to repair balance sheets. Bank of China said it is currently studying “various options” to replenish capital after doling out more new loans than any other Chinese lender. The company's shares fell in Hong Kong trading, as stated in a report in Bloomberg.

"With China's pace of credit growth, banks' capital will be drained very quickly and that leaves little room for cushioning if asset quality worsens," said Sheng Nan, a Shanghai-based analyst at UOB-Kayhian Investment Co.

The CBRC said on 23 November that lenders must formulate longer-term fundraising plans and those with “relatively low” capital adequacy ratios and without a “practical” plan will face four restrictions on their operations, including limits on market entry, outbound investment, new branches and “business expansion.”