China Merchants Bank, one of the largest commercial banks on the mainland, said that it will consider whether it should conduct further financing to meet the capital requirements laid down by the nation's regulator.

Market analysts have predicted that medium-sized mainland banks may have to conduct fund-raising activities again in 2011 to meet the more stringent mainland regulatory requirements. They added that this is not as likely to be the case with the large commercial banks due to their stronger capital position.

Separately, the bank released its annual results on Thursday night, announcing that its net profit jumped 41.3 percent to 25.7 billion yuan in 2010 from the 18.2 billion yuan the previous year. The final dividend was raised 38 percent to 0.29 yuan per share from 0.21 yuan per share in 2009.

The lender's Chairman Fu Yuning said at Friday's results briefing in Hong Kong that the bank will study various ways of enhancing capital so as to bolster its capital buffer in times of market volatility.

"One possible way to raise capital is to issue subordinated debts," Fu said.

The China Banking Regulatory Commission tightened the capital adequacy ratio for mainland banks to curb lending in the wake of the central government's 4 trillion yuan stimulus package after the 2008 financial crisis, and the subsequent economic recovery and increase in inflation.

This led to a record 340 billion yuan being raised by mainland banks in 2010.

The latest figures from the regulator showed that the average capital adequacy ratio of mainland commercial banks stood at 12.2 percent at the end of 2010, which was 0.8 percentage points higher than the beginning of 2010.

The regulator requires that the ratio for large mainland banks should be at least 11.5 percent, while the ratio for small and medium-sized banks should be above 10 percent.

"China Merchants Bank has the lowest capital adequacy ratio among the eight mainland banks listed in the city. It would not be a surprise if they resort to capital financing again," said Dickie Wong, a research manager at Kingston Securities.

The bank's capital adequacy ratio stands at 8.04 percent while that of the other seven mainland banks are hovering in a range between 10 percent and 12.5 percent.

"Separately, the provision ratio to outstanding loans of the bank and other medium-sized mainland banks - such as Bank of Communications and China Minsheng Bank - are barely touching 2 percent. That is lower than the regulator's statutory requirement of 2.5 percent. Therefore, they have a need for more capital raising, though it may not take the form of a rights offering," Wong said.

To further promote mainland banking system stability, the regulator is drafting a slew of new rules to set tougher criteria for capital adequacy, provisions, leverage and liquidity conditions for mainland lenders. Among the provision standards, one is that the mainland banks' provision ratio on outstanding loans should be set at 2.5 percent, with a grace period of two years for larger banks and five years for small and medium-sized banks.

The other mainland banks that announced their annual results this week, including Industrial and Commercial Bank of China, Agricultural Bank of China and Bank of Communications, all said that they do not require external financing to replenish their capital in 2011.

China Daily

(HK Edition 04/02/2011 page2)