Cross posted from Investing in Chinese Stocks
Some recent news from the past month:
China ‘bad bank’ Huarong secures $2.4bn pre-listing capital
Another of China’s four big “bad banks” has successfully raised pre-listing capital, with China Huarong Asset Management attracting $2.4bn from investors led by Warburg Pincus, Goldman Sachs and Malaysia’s Khazanah.
Mainland banks’ preferred shares have appeal for analysts
The securities pose some problems. They can only be priced in yuan and the same restriction applies to the dividends. The preferred shares can only be placed with 200 investors, greatly restricting the market.
However, as the outlook for banks’ common equity shares is threatened by rising bad loans and an overall slowdown in the sector, the relatively high fixed yields on the preferred shares are becoming much more attractive.
“In terms of whether the market can digest [the preferred shares], well, I’m not worrying too much about that,” said Erin Lee, an analyst at Yuanta Securities in Shanghai.
Fund managers and asset management companies are already dumping common shares of mainland banks with the hope of buying into the preferred shares later, she said.
China’s Bank of Communications Starts Bond Sale
Bank of Communications Co., the country’s fifth-biggest lender, has started meeting overseas investors to sell a type of debt that complies with new global regulations, according to people familiar with the matter. The lender has hired eight banks for the proposed debt offering.
Shadow banking’s benefits to China undeniable -c.bank official
China should grasp the opportunity to guide shadow banking to serve businesses with needed financing, while at the same time strengthening regulation of the sector, a central bank official was quoted as saying.
A string of shadow banking defaults, such as that of a 4 billion yuan ($652.18 million) credit product backed by Evergrowing Bank earlier this month, have raised speculation about whether the government will crack down further on the sector.
These just scratch the surface of the funding needs for Chinese banks. Lending is tight because banks know their bad loans are extensive and growing. Short of a major crisis, the banks will have to raise capital in the market, and the amounts could run as high as $200 billion over the next few years.
From QQ Finance:
In addition, it is worth mentioning that the upward trend in non-performing loans of commercial banks obviously, the first half of 2014, the balance of non-performing loans of 694.4 billion yuan banking financial institutions, compared with late last year increased by 102.3 billion yuan; NPL ratio 1.08%, compared with year-end 2013 growth of 8 basis points. In this case, banks write off bad loans increased efforts are unprecedented, 16 listed banks to write off bad loans during the first half of this year amounted to 71 billion yuan.
CEBM Group estimates that Chinese commercial banks will need ￥1 trillion in captial, about $160 billion, for every 1% increase in bad debts between now and 2018. Should bad debts rise 3% (which wouldn’t remotely constitute a crisis), the banks would need nearly $500 billion in capital.