Before the National Day, the news that six large banks will receive a new round of national capital injection among the package of favorable policies announced by "one line, one bureau, and one association" has attracted much attention.

There is continuous speculation in the market about the specific capital increase plan. Many analyses believe that it is not ruled out that, with the cooperation of the Ministry of Finance, the issuance of special government bonds may be restarted to replenish the capital of banks.

In addition, with the optimization and adjustment of IPO and refinancing policies, the refinancing of bank stocks that have been collectively broken net for a long time in the secondary market remains lukewarm. Against the background of profit decline, the need to support the real economy, and increased dividend efforts, the overall capital replenishment pressure of the industry has attracted attention. Suggestions for expanding external capital replenishment channels continue to emerge, and the call for appropriate relaxation of capital market refinancing is also increasing.

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Guesses about large bank capital injection

At the press conference of the State Council Information Office on September 24, Li Yunze, the director of the China Banking and Insurance Regulatory Commission, revealed that after research, the country plans to increase the core tier-one capital of the six large commercial banks, which will be implemented in an orderly manner according to the idea of "overall promotion, phased and batch, one line one policy."

This is also the first time in about 15 years that state-owned large banks have received national capital injection again. There have been three main rounds of capital injection before: the first was in 1998, when the Ministry of Finance issued special government bonds to inject 270 billion yuan into the four major banks; the second was from 2003 to 2007, when the Ministry of Finance injected capital into ICBC, CCB, BOC, and BOCOM through Central Huijin and achieved A/H share listings in two places; the third was in 2010, when ICBC, CCB, BOC, and BOCOM supplemented capital through rights issues; ABC, Postal Savings, and BOCOM successively raised funds through IPOs and private placements.

Regarding the background of capital increase, Li Yunze mentioned that in recent years, large commercial banks have mainly relied on their own retained profits to increase capital. However, as the intensity of banks' fee reduction and benefit concession continues to increase, the net interest spread has narrowed, and profit growth has gradually slowed down. It is necessary to coordinate various internal and external channels to enrich capital.

Lin Yingqi, a banking industry analyst at CICC, believes that this round of capital injection is similar to the last round, aimed at dealing with the capital pressure brought by the widening gap between asset and internal capital replenishment speeds. "Core tier-one capital can only be supplemented through external equity financing and internal profits, not through capital bonds. In recent years, state-owned large banks have been under pressure in interest spreads and profits, so it is necessary to seek external financing." Lin Yingqi said.

Other analyses believe that compared with the previous rounds of state-owned large bank capital injection focusing on digesting non-performing assets as a passive behavior, this round of capital injection is more of an active behavior to cope with future risks.

On the one hand, capital injection can better play the role of state-owned large banks as the main force in serving the real economy and the ballast stone in maintaining financial stability; on the other hand, in conjunction with expanding the equity direct investment business of the financial asset investment companies (AICs) under the five large banks, capital supplementation will enhance the large banks' technology financial service capabilities. In addition, against the background of regulatory encouragement to increase dividend efforts, capital injection is also conducive to enhancing the large banks' continuous dividend capacity.Against this backdrop, there are various speculations in the market regarding the methods and scale of the new round of capital increases. In terms of funding sources, drawing on historical experience and current realities, industry expectations are rising for the Ministry of Finance to resume the issuance of special treasury bonds.

In the external channels for replenishing core tier-1 capital of listed banks, they mainly include methods such as private placements, rights issues, and convertible bonds, but each method faces different constraints.

Lin Yingqi believes that, based on historical experience, rights issues usually involve discounts and have a negative impact on stock prices; convertible bonds, due to the restrictions on the conversion price (generally not lower than one times the book value, and the forced redemption condition is generally 130% of the conversion price), have requirements for the performance and valuation level of bank stock prices, and there is uncertainty in the actual capital replenishment time; the restrictions on private placements are relatively smaller compared to the first two methods and are more feasible. "Historically, private placement prices generally do not fall below one times the book value, and there are certain policy restrictions on financing for listed companies that are 'below net value'. We will continue to observe whether there is a possibility of breaking through this convention in the future." He emphasized in his latest report.

A senior bank analyst from an international rating agency told Yicai that the regulatory authorities' recent statements have a positive impact on the rating, and any method has a positive significance, with the key being the scale of the capital injection. Compared to the previous central Huijin's increase in the secondary market, this method has a more significant practical meaning.

According to the requirements of the Global Systemically Important Banks (GSIB), the minimum core tier-1 capital adequacy ratio for the four major banks, Bank of Communications, and Postal Savings Bank are 9.0%, 8.5%, and 8.0%, respectively. Looking at the semi-annual reports, currently, the space for CCB and ICBC to meet regulatory requirements is relatively large, around 5 percentage points, while BoCom and Postal Savings are less than 2 percentage points away from regulatory requirements, with relatively smaller space.

Wang Jian, a banking industry analyst at Guosen Securities, believes that the current core tier-1 capital adequacy ratios of different major banks vary greatly, and regulatory requirements also differ, so it is more reasonable to promote the idea of one bank, one policy.

Under Lin Yingqi's assumptions and calculations, if the capital injection increases the core tier-1 adequacy ratio of the six major banks by 0.5 percentage points, 1 percentage point, and 2 percentage points, it implies relieving bank capital pressure for 2 years, 5 years, and 10 years, respectively, requiring capital injection scales of approximately 0.5 trillion yuan, 1.1 trillion yuan, and 2.1 trillion yuan.

In terms of funding sources, he believes that due to the large scale of financing, referring to historical experience, the main investors are expected to be the central finance, and the available fundraising methods include the issuance of special treasury bonds or central Huijin bond financing, etc.

Listed banks still face the problem of refinancing

Some market authorities previously told Yicai that for a long time, the channels for exogenous capital replenishment in China's banking industry need to be unblocked, and capital replenishment mainly relies on endogenous profit retention. Under the narrowing net interest margin, insufficient capital will significantly restrict the ability of banks to support the real economy. Currently, banks are facing significant pressure to narrow net interest margins, and many banks have the intention to replenish capital. If effective bank capital replenishment can be promoted, it will help ensure the sustainable operation of banks and enhance the ability of future financial support for the real economy.In fact, not only state-owned large banks, but also joint-stock banks and small and medium-sized banks are facing the pressure of balancing capital and asset expansion. Especially under the constraints of capital market refinancing policies, the channels for exogenous capital replenishment of bank stocks are under further pressure to narrow.

Since last August, the China Securities Regulatory Commission (CSRC) has repeatedly stated its stance on optimizing IPOs and refinancing supervision, emphasizing the strict limitation of refinancing for listed companies with broken issuance prices and net asset value. The "Nine National Articles" issued in April this year also clearly stated the need to "strictly control the access to listing" and reiterated the need for "strict review of refinancing."

In the capital market, bank stocks are a typical long-term sector with collective net asset value breaks. Although hedging funds have significantly raised bank stock prices since last year, according to the latest closing prices, the price-to-book ratios of the 42 A-share bank stocks are all less than 1 times, with 10 of them having price-to-book ratios of less than 0.5 times.

Many analyses previously believed that the regulatory rules for bank stocks are more special, and therefore the impact of new regulations may be relatively small. In addition, as the pressure on interest rate spreads eases, commercial banks can alleviate the pressure of capital replenishment by strengthening internal capital replenishment and reducing dividends.

Looking at the dynamics of refinancing through capital market channels, the latest bank refinancing activity occurred at Rui Feng Bank, which updated its convertible bond issuance application plan in September this year, with an amount not exceeding 5 billion yuan. As early as 2022, the bank issued a convertible bond issuance plan, and after experiencing the registration system reform, it was accepted and inquired by the Shanghai Stock Exchange in March 2023, and has since updated related documents multiple times.

In addition to Rui Feng Bank, the refinancing progress of listed banks is mostly stuck in the previous year. Last year, Zheshang Bank completed a rights issue, Wuxi Bank and Postal Savings Bank completed additional issues, and banks currently in the queue for review include Xiamen Bank, Changsha Bank, CITIC Bank, etc.

In August last year, Minsheng Bank announced the termination of a 50 billion yuan convertible bond issuance plan, attracting market attention. The bank stated that the decision was made after comprehensive consideration of the capital market environment and careful analysis and demonstration. At that time, the investor hotline staff of Minsheng Bank told reporters that there were two main reasons for terminating this convertible bond issuance. First, the financing scale of this time is relatively large, and the current secondary market may have limited bearing capacity; second, the above refinancing plan has been introduced for a long time, and there are some imperfections in the current context. (For details, see the report: Behind the termination of Minsheng Bank's 50 billion yuan convertible bond issuance: comprehensive consideration of market environment and rationality of issuance plan)

In June last year, Hangzhou Bank announced that it would adjust the original定向增发 fundraising amount from no more than 12.5 billion yuan to 8 billion yuan, and obtained the approval of the Zhejiang Supervision Bureau of the State Financial Supervision Administration in September of the same year. In April this year, the bank announced that it would extend the validity period and authorization period of the定向增发 plan from this July to July 2025.

For the "shelving" of refinancing by many banks and the adjustment of plans, more than one market person previously analyzed to reporters that on the one hand, it is constrained by new regulatory requirements, and on the other hand, it is also related to the sluggish market. Large-scale refinancing has a "blood-sucking" effect, which is easy to impact the market.

However, the CSRC has previously clarified in new requirements that for large-scale refinancing of listed companies in the financial industry or other industries with large market value, a pre-communication mechanism is implemented to focus on the necessity of financing and the timing of issuance.As the market warms up, there are calls within the industry to broaden the channels for capital replenishment, and there is also a growing clamor for a moderate relaxation of refinancing by commercial banks in the capital market. Industry research professionals have told reporters that commercial banks have an objective need for capital replenishment, but the key is to clarify the necessity and rationality of financing.