Chinese lenders are trapped between stones and difficult places. Income is under pressure, but the government wants them to increase loans and encourage growth. This dilemma is most striking in the communication bank $ 70 billion 601328, 601328.
Beijing on Wednesday launched plans to mobilize 500 billion yuan ($ 68.8 billion) special debt funds to recapital its main state banks. Officials do not provide further information, but Bocom will be one of the first batch for capital injection, Bloomberg reported last week, quoting the source. Analysts at JPMorgan consider 150 billion Yuan to go to the lenders supported by HSBC. It can lift the ratio of Tier 1 general equity to 11.8%, from 10.3% in the third quarter of 2024.
Bocom is the weakest of the five global banks that are systemically systemical. The lowest capital buffer sports lender during the minimum regulation. The average return of equity was set down to 7.3% this year, under his colleagues, according to the estimated collected by Visible Alpha. Even after gathering around 30% over the past 12 months, the Hong Kong shares with only a book value forward 0.4 times, per LSEG, trailed other lenders.
The capital ratio table in the five largest banks in China shows that everything is sufficiently capitalized relative to the minimum regulation; Bank of Communications has the smallest buffer.
Just like his rival, Bocom struggled with the income crisis because of a slow loan demand and interest rate cutting margin. But the funding costs are higher than colleagues, because the retail network is smaller and less geographically less diverse. Meanwhile, the risk of piling up in the Bocom Credit Card business that used to be booming, with loans that had passed reached 5.71% of the unit portfolio at the end of September; The total ratio of banks is 1.39%.
Recapitalization will, on paper, placing a bocom on a stronger foothold to help support the target growth of GDP “around 5%” Beijing amid increasing US trade tariffs. This Shanghai -based bank offers a foothold that should be imitated in the Yangtze river delta, where the top industry including electric vehicles contributes about 25% of economic output.
But capital injection will only provide a short suspension of the company and its competitors because their income is getting worse. Economists expect the central bank to cut further policy level this year, as many as 40 basis of the most aggressive annual reduction in a decade, per reuters. And with the loan who is expected to maintain a dividend payment of 30% of income, it is not an incentive to lend more. Analysts at S&P Global Forecast Bocom ratings will grow a loan book of 7% to 7.5% per year between 2024 to 2026, down from 9% to 11% in 2022 to 2023. With such pressure construction, the bank will better keep the new powder dry.
Source: Reuters
