HONG KONG: Shares of Bank of China Ltd fell nearly 4 percent in Hong Kong yesterday after the nation's third largest bank by market value said it was considering various options to replenish capital.

Possibly responding to speculations about a potential fundraising exercise, the lender said in a statement that it "is studying various options to replenish capital in order to achieve sustainable business development." However, the bank said it currently had no detailed fundraising plans to disclose.

Market talk surfaced recently suggesting that Bank of China may need to raise as much as 100 billion yuan to meet higher capital requirement levels that the banking regulator is tipped to impose soon.

An equity fundraising exercise, the most probable means of raising capital ratios, will have dilution effect on a company's earnings per share (EPS), thereby weighing on its valuation and stock price. Shares of Bank of China slumped HK$0.19, or 3.95 percent, to close the day at HK$4.620.

The China Banking Regulatory Commission (CBRC), the country's banking regulator, has denied rumors that it is planning to cap banks' loan portfolios and to raise the capital adequacy ratio for big commercial banks to 13 percent from the current 8 percent .

A spokesman for the CBRC said yesterday that the regulator was studying the possibility of raising the required capital ratios for banks, but added that it would definitely not raise the capital adequacy ratio to a uniform 13 percent.

The spokesman's statement suggests that moves to raise capital ratios have been included in the regulator's agenda.

Market watchers believe that most Hong Kong-listed mainland banks currently have no need to increase their capital levels unless the regulator raises the capital requirements.

"The capital adequacy ratios of locally-listed big banks remain at levels much higher than the required level. They may not need to raise capital in the next 12 months," said Bonnie Lai, a banking analyst at CCB International Securities Ltd.

However, she qualified her statement by saying that "whether banks need to increase capital will depend on their future business development".

Bank of China recently reported a core tier-one capital adequacy ratio of 9.4 percent, while that of China Construction Bank (CCB) and Industrial and Commercial Bank of China (ICBC) remained at 9.6 percent and 9.9 percent respectively.

The ratios are still much higher than the required 7 percent, Lai said.

The ratios have slipped from previous higher levels after banks lent out a record 8.9 trillion yuan of loans in the first ten months this year to help finance the stimulus package implemented by the central government after the financial crisis.

Mainland banks' aggressive lending is believed to have raised the regulator's concerns about future liquidity risk, prompting it to consider plans to raise capital requirements for lenders.

Reports said ICBC has also been studying options to hike its capital adequacy ratios, including raising fresh capital, as well as reducing risk asset, while a CCB spokesman said the bank was paying attention to market talk of potential higher capital requirements.

(HK Edition 11/25/2009 page4)