BREAKINGVIEWS-China’s banks head towards new lending woes

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

By Robyn Mak

HONG KONG, April 1 (Reuters Breakingviews) - Fresh trouble is brewing for China's banks. The state is injecting 520 billion yuan ($72 billion) of capital into four big lenders, hoping to spark consumer-driven economic growth. But doing Beijing's bidding is already starting to cause some stress.

On paper, the private placements unveiled on Sunday by Bank of China 601988.SS, China Construction Bank 601939.SS, Bank of Communications (BoCom) 601328.SS and Postal Savings Bank of China $(PSBC)$ 601658.SS look generous. The new shares are being issued at a premium of between 8.7% and 20.1% to their 20-day average stock prices. However, in China, state-owned assets usually aren't allowed to be sold at a discount to book value. The banks are issuing shares at between 66% and 76% of that metric, the first time a major lender has sold below the regulatory minimum, according to Jefferies analyst Shujin Chen; she reckons that suggests the state has "limited confidence in the banks' share price performance".

There's probably more capital coming: Bloomberg last year reported the government was planning to put 1 trillion yuan into the country's six biggest lenders. So Industrial and Commercial Bank of China 601398.SS and Agricultural Bank of China 601288.SS could be next in line.

This first batch will add an average 1 percentage point to the quartet's Common equity Tier 1 capital ratios. That would be okay if the goal were just to provide a bit of support as the industry deals with record-low net interest margins and sluggish earnings growth.

But Beijing has been leaning on the financial sector to spur consumer spending in the export-dependent $19 trillion economy. It's a tall order: China's domestic savings rate was 44% of GDP in 2023, per the World Bank, compared to 19% in the United States. Property and stock markets are still weak, too, dampening consumer confidence and credit demand.

Some have been growing their personal loan books: Postal Savings Bank by almost 7% last year and BoCom by more than 11%. But the major lenders are doing so by offering interest rates as low as 3%, according to Bloomberg, compared to as high as 10% two years ago. The risks are already peeking through: BoCom's ratio of non-performing personal loans rose by a third to 1.08% last year.

Having emerged battered from the property crisis, China's banks may be heading into another one.

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CONTEXT NEWS

Four of China's largest state-owned banks announced on March 30 plans to raise a combined 520 billion yuan in private placements from state investors, including the finance ministry.

Bank of China said it aims to raise up to 165 billion yuan and China Construction Bank plans private placements of up to 105 billion yuan, according to separate filings released by the banks. Bank of Communications said it will sell shares of as much as 120 billion yuan, and Postal Savings Bank of China will raise up to 130 billion yuan.

China's finance ministry, a major shareholder of the four banks, will be involved in all four capital raises.

(Editing by Antony Currie and Aditya Srivastav)

((For previous columns by the author, Reuters customers can click on MAK/ robyn.mak@thomsonreuters.com))