China banks need $73 billion capital in 2010: Regulator

Chinese banks may need to raise about 500 billion yuan ($73 billion) from the capital markets next year as rapidly expanding loans weaken their financial strength, a senior banking regulator said, marking the first official estimate of banks' near-term fund-raising.

Li Fuan, a director at the China Banking Regulatory Commission (CBRC), told a forum over the weekend the figure included 100 billion to 200 billion yuan for Agricultural Bank of China, which is preparing for an initial public offering.

Fuan said listed banks were under pressure to raise more than 300 billion yuan in 2010 via either bond or equity issuance due to China's lending boom, adding that selling shares was the best way to supplement core capital.

Big state-run lenders Bank of China, China Construction Bank and Bank of Communications (BoCom) have notified regulators they were working on fundraising plans to meet Beijing's tighter capital adequacy requirements, a source with direct knowledge of the matter told Reuters last month.

The news triggered a sharp decline in the domestic stock market.

"Banks face major pressure in terms of capital adequacy ratios as the trend for tougher regulation becomes clearer," said Qiu Zhicheng, an analyst at Guosen Securities Co.

"Lenders, especially share-holding and city commercial banks, must raise money through equity sales to fund rapid loan growth."

China's new loans surged to record levels in the first half of this year and, despite an easing in the second half, are likely to remain relatively high by historical standards next year at 7.5 trillion yuan, according to a Reuters poll of 20 analysts.

The massive lending, aimed at sustaining China's economic growth, would cut banks' capital adequacy ratios, a key measure of their ability to absorb losses.

BNP Paribas said in report published last month that China's listed banks needed to raise 300 billion yuan selling shares and bonds to shore up their capital.

The CBRC's Li said a key lesson from the financial crisis was the importance of maintaining core capital.

He also called for capital market reforms to enable companies to raise money more easily from the stock market, and for reducing the economy's reliance on bank lending.

Li Xiaopeng, vice-president of Industrial and Commercial Bank of China, the country's biggest lender, told the same forum that declining capital adequacy ratios at China's commercial banks merited serious attention.

Bank of Nanjing, a Chinese city commercial lender partly owned by French bank BNP Paribas, said over the weekend it planned to raise up to 5 billion yuan via a rights issue to existing shareholders.