Commercial banks’ refinancing to exceed 200b yuan
China's commercial banks will speed up their refinancing pace in the fourth quarter in order to raise the capital adequacy ratio and core capital adequacy ratio, Shanghai Securities News reported on Oct 12.According to an earlier refinancing plan, Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB) and Bank of China (BOC) will refinance through stock allotment of A shares and H shares, with limits of 45 billion yuan ($6.7 billion), 75 billion yuan and 60 billion yuan respectively, the newspaper reported.
According to the newspaper, China CITIC Bank held its shareholder meeting on Sept 30 and approved a 26 billion yuan stock allotment through A shares and H shares. With that, refinancing of the four banks would exceed 200 billion yuan.
Although commercial banks have implemented intensive refinancing plans in the fourth quarter, the impact to the market will not be huge, according to analysts. "The total refinancing in A-share market of ICBC, BOC and CCB are not expected to exceed 10 billion yuan," said Wu Yonggang, an analyst with Guotai Junan Securities.
Statistics from Industrial Securities showed that by Sept 30, 350 billion yuan in refinancing plans of listed companies was achieved, while 200 billion yuan in refinancing plans remain in the A-share market. "The refinancing of banking stocks has little impact on the market now," Wu said, according to the newspaper.
The government's raising of banks reserve requirement Monday doesn't eliminate the possibility that the central bank will raise interest rates afterwards, experts said Tuesday.
China's central bank raised the reserve requirement on six large commercial banks by 50-basis points to 17.5 percent as a temporary, two-month period due to fast loan growth, Reuters reported Monday citing unnamed sources. The reserve requirement is the amount of money and liquid assets banks must hold in cash.
The central bank, or People's Bank of China was not available to comment.
The six banks include China's Big Four - the Industrial and Commercial Bank of China, Bank of the China, the Agricultural Bank of China and the China Construction Bank - plus Minsheng Bank and China Merchants Bank. Shares of these banks went down slightly at Tuesday's bourse closing.
The government's move aims to curb excess liquidity in the market, Lu Zhengwei, a senior economist with Shanghai-based Industrial Bank, told the Global Times.
The rate raise is expected to drain cash totaling some 200 to 250 billion yuan ($29.74-37.17 billion) out of the market, Lu said.
Policymakers set a total new lending quota for all commercial banks this year of 7.5 trillion yuan ($1.12 trillion). Aggressive lending, recent yuan appreciation and drawing hot money inflow have pushed up assets prices.
Market watchers speculate that the central bank will not raise interest rates following the reserve requirement rate hike in an effort to curb inflation. The consumer price index (CPI), a measurement of inflation, has been rising in recent months, surpassing the one-year deposit rate for seven consecutive months.
It's likely that September's CPI would be at least as high as it was in August at 3.5 percent, Goldman Sachs economist Song Yu estimated in a report.
Lu estimated that if September CPI continues to rise, policymakers might increase interest rates by 27 basis points or 0.27 percentage points to curb inflation.
Goldman Sachs' Song estimated that the possibility for further interest rate hikes in the short term however is low considering policymaker's concerns that would have on economic activity and hot money inflows, which may lead to further currency appreciation.
Lu however believes that hot money inflows are driving up asset prices in the real estate sector, and without quick action, the situation could become even worse.
State-owned enterprises (SOEs) are the major customers of commercial banks and therefore enjoy preferential rates below the prime-lending rate. Compared with SOEs, privately owned small- and medium-sized enterprises (SMEs) have to pay additional risk premiums to the prime rate, but even so, banks don't want to lend to them.
Commercial banks’ refinancing to exceed 200b yuan
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