China banks shares mixed after 520 billion yuan recapitalization plans

Shares of China's big state-owned banks showed mixed performance in morning trade on Monday after lenders unveiled recapitalisation plans to boost their core Tier-1 capital.

China Construction Bank (0939) jumped 3.8 percent and Bank of China (3988) rose 2.4 percent. But the Bank of Communications (3328) remained flat and Postal Savings Bank of China (1658) fell 1.4 percent. 

This comes as the recapitalisation plans help the lenders to increase capital buffers and manage asset quality strains. China's major banks have reported flat annual profit and lower margins as a slowing economy and a struggling property sector have weighed on their earnings.

Four of China's biggest state-owned banks said on Sunday they plan to raise a combined 520 billion yuan (HK$557.7 billion) from investors via private share placements after Beijing pledged to help them support the economy.

China's finance ministry, a major shareholder of the four banks, will be involved in all four capital raising exercises. As part of the plan, the finance ministry said on Monday that it would issue 500 billion yuan in special treasury bonds in 2025 to support bank capital replenishment.

"Supplementing bank capital can leverage banks to support a larger scale of credit," analysts at Northeast Securities wrote in a research note on Monday. "Shrinking interest rates meant banks' net interest margins narrowed and profit declined, which increased banks' capital pressure."

As the pressure on small and medium-sized banks increases, it is expected that large banks will play a greater role in supporting the economy in the future, the analysts said.

REUTERS AND STAFF REPORTER