BEIJING—Bank of China is seeking to raise tens of billions of dollars in new capital, the first major Chinese bank to move aggressively to shore up its balance sheet following a lending binge that has raised concerns about the long-term health of the Chinese banking sector.
Bank of China said in a statement Friday that it plans to seek shareholder approval for a mandate to sell new shares amounting to not more than 20% of its existing Hong Kong- and Shanghai-listed shares, which could raise almost $30 billion based on the shares' Friday closing prices. The Beijing-based bank also said it plans to issue as much as 40 billion yuan ($6 billion) of bonds convertible into Class A shares, which are traded on China's domestic markets.
China's banking sector made 9.59 trillion yuan in new loans last year as the key element of Beijing's stimulus program. While that allowed the country's full-year gross domestic product to grow by 8.7%, making it the envy of large economies around the world, the unprecedented credit expansion has raised concerns about how many of those loans will turn bad in coming years.
In response, the banking regulator has been pushing banks to increase the amount of capital they hold against their loans, a ratio that has been sliding as banks' lending has grown. With banks expected to issue a further seven to eight trillion yuan in loans this year, banks' capital needs are likely to build.
Analysts say Bank of China was always likely to be the first of China's big four banks to return to the equity market, having ramped up its lending particularly aggressively in the first half of the year. During that period its new loans increased 38% from the end of the previous year, much faster than the 20% growth posted by Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. Bank of China managed a slight gain in its share of China's domestic loan market over the period, according to the bank's half-yearly financial report, although that came at the expense of its capital position.
Its capital-adequacy ratio was 11.63% at the end of September, close to the minimum 11% Beijing requires of large banks, and less than ICBC and CCB, which were both above 12%. Analysts say those banks may not have to sell new equity unless the regulator further raises the capital requirements.
Bank of China last week ordered its credit officials to halt any new yuan loans due to excessively fast lending growth so far in January, a person familiar with the situation told Dow Jones Newswires on Wednesday.
In a statement posted on its Web site Friday, Bank of China said the plan to raise capital has been approved by the board but requires approval from shareholders, who are expected to meet in March to vote on the plan.
"To achieve a long-term development strategy and meet the increasingly strict regulatory requirement…Bank of China needs to replenish its capital in a timely manner to improve its overall competitiveness, support a steady profit growth and maximize shareholders' interests," the bank said in a separate statement posted on its Web site.
While Bank of China's two major rivals may steer clear of the equity market this year, analysts predict 2010 could be the biggest year for new fund raising from China's banks since Bank of China and ICBC raised tens of billion of dollars in 2006.
Agricultural Bank of China Ltd., the only one of the big four banks not publicly traded, is awaiting approval for an initial public offering that is expected to happen this year.
It will likely be joined by an expected IPO from Everbright Bank and, potentially, secondary offerings from China's second-tier banks, which also aggressively made new loans last year to the detriment of their capital position, which also lent aggressively.
