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Despite their size and strength in many financial metrics, Chinese banks are not leaders when it comes to core capital. After a state-directed lending binge earlier this year, worries have surfaced that China’s largest banks might launch massive cash calls to meet rising capital requirements.
Although based on thinly-sourced, sometimes contradictory news flow, fears of a major hike in capital requirements seem overdone. Although two of the country’s largest lenders, China Construction Bank and Bank of China, may need to raise fresh funds to bolster capital ratios, the scale of the fundraising should be minor compared to recent blockbuster rights issues at banks in Europe, the US and Japan.
The quality of loans taken on in the past year may put balance sheets under pressure, but Chinese banks’ earnings capacity appears strong enough to absorb potential losses without requiring drastic capital-raising measures.
Read more at Financial Services Briefing: “Great wall of worry” (December 10th)