2012-03-27

Chinese banks start raising capital, again

China's banks need to replenish their capital after billions in bad loans were made the previous three years. First a look at recent earnings reports.

Slowing China growth hits CCB earnings, shares down
CCB (601939.SS), which is valued at $193 billion, said total non-performing loans (NPLs) rose almost 10 percent in the quarter, hit mainly by a deterioration in the manufacturing, real estate and retail sectors.

"They are trying to manage the quality of their loans very tightly, but NPLs is an issue the market is very concerned about and any tick upwards will not be good," said Patrick Pong, an analyst at Mirae Asset Management in Hong Kong.

"If the economy slows down, credit quality will naturally worsen," he said.
NPLs will jump as the economy slows, especially when real estate projects start to fail.

China Minsheng Bank in shares refinance
China Minsheng Banking Corp has jump-started its mega-refinancing deal that is expected to raise up to HK$11.3 billion to cover potential bad loans and satisfy the regulator's tightened capital requirements.

The share placement added to evidence that mainland lenders are hungry for capital infusions amid rising risks of a bad debt crisis.
The big question is whether foreigners will throw good money after bad:
Mainland banks have raised more than US$272 billion through bond and equity issues globally since 2005, according to data provider Dealogic.

Since late 2009, when Beijing unveiled its infrastructure-focused stimulus package, Chinese banks freely granted credits to state-owned companies to fund a construction spree.

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