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Chinese banks have 'solved' capital-raising - CBRC

(Agencies)
Updated: 2010-03-26 16:44

BEIJING - Chinese banks have "solved the problem" of how to smoothly raise capital in the markets after a heavy surge in lending last year, top banking regulator Liu Mingkang said.

Speaking a day after Industrial and Commercial Bank of China, the world's largest bank by asset value, said it would raise up to $3.7 billion through a convertible bond issue, Liu expressed confidence in the health of China's banking system.

"Talking about capital adequacy, it's not only the level of capital. It's the quality of capital," he told a forum on Friday, noting that 80 percent of Chinese banks' capital was in the form of core Tier I capital composed of equity and retained earnings.

This exceeded the regulatory threshold of 75 percent, said Liu, who heads the China Banking Regulatory Commission.

Banks had set aside provisions equivalent to 165 percent of their non-performing loans by the end of February. That exceeds the 150 percent level mandated by the CBRC and is up from 155 percent at the end of 2009.

Where more capital is needed, lenders would fully disclose fundraising plans, Liu said.

"Banks have already solved the problem of how to have a sustainable increase of their capital in the market," he said.

In addition to ICBC, Bank of China and Bank of Communications, China's No 4 and 5 lenders, respectively, are among a dozen or so banks that have announce plans to raise fresh funds.

Banks need to bolster capital adequacy ratios depleted by a record surge of 9.6 trillion yuan in lending last year as they answered the government's call to lubricate the economy with credit to weather the global financial crisis.

Don't worry

Although the country's banks sailed through the crisis little scathed, worries are now mounting about a build-up in bad debt, especially in loans that have gone to the property sector.

Liu said his agency was aware of these concerns, but had things under control.

The regulator has instructed banks to lower their loan-to-value ratios in the property sector and demanded that collateral for real estate loans be in the form of projects that are either completed or under way, not empty land, he said.

Banks must have face-to-face talks with borrowers and conduct at least one on-site visit before extending a mortgage, he said.

As for concerns that banks may have undue exposure to rocketing land prices, he said their total exposure was only 1 percent of their loan books.

"We don't worry a lot about that," he said.

The CBRC could also raise down-payments on mortgages to reduce risks, he said. Hypothetically, he said down-payment ratios could be cut to 20 percent during periods of stress and raised to 50 percent when the going was good.

"The down-payment is dynamic," he said.

Some economists fret that banks are also running a big risk because they have lent extensively to local government financing vehicles against the collateral of land.

Industry officials said the CBRC had instructed banks to report on their exposure by the end of the second quarter.