China banks urged to boost capital with profits

Regulator favors raising capital by rights offering while discouraging private placements and public share sales.

Chinese banks should bolster capital with retained earnings to meet adequacy ratio requirements before using other methods, said the China Securities Regulatory Commission’s Zhu Congjiu.

Banks unable to use retained earnings should bolster capital with rights offerings, Zhu, assistant to the chairman of the securities regulatory, said at a briefing in Beijing. Rights offering are preferable to sales of subordinated or convertible bonds, with private placements and public share sales least favored, Zhu said.

China’s banks are in need of capital this year after extending a record 9.59 trillion yuan ($1.4 trillion) of new loans in 2009, following the government’s decision to scrap lending caps as part of efforts to fight off the effects of the global financial crisis.

China Merchants Bank Co., the nation’s fifth-largest by market value, has received regulatory approval to raise 22 billion yuan ($3.22 billion) from a rights issue. Bank of Communications Ltd. also plans to raise as much as 42 billion yuan ($6.15 billion) in a rights offer. Bank of China Ltd. and Huaxia Bank Co. have announced plans to sell convertible bonds and subordinated bonds to replenish capital.

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