China considers easing bank shareholding limits to boost capital, sources say

China is considering easing shareholding restrictions for some major investors, people with knowledge of the matter said, in a move aimed at broadening capital-raising options for commercial banks reeling from an economic slowdown.

The National Financial Regulatory Administration (NFRA), the country's banking sector regulator, in January held a meeting with some bank representatives to discuss the potential relaxation, said the people.

Under rules introduced in 2018, a single investor can hold 5 percent or more, considered a major shareholder, in no more than two commercial banks, or can have a controlling stake in only one lender.

The regulator is now weighing allowing some bank shareholders to become major investors in one to two additional lenders, said one of the people, who declined to be named as the discussions are not public.

Shareholders would need approval from the NFRA to increase their bank holdings, with the regulator reviewing their qualifications and the urgency of a bank's capital needs on a case-by-case basis, the person said.

The plan to ease ownership rules in China's US$70 trillion (HK$547.3 trillion) banking sector, at a time when lenders' balance sheets and asset quality have been hit by the economic downturn and the property sector crisis, has not been reported previously.

Rising geopolitical tensions and turbulent global markets are intensifying the push to bolster domestic banks' balance sheets, as Beijing accelerates support for strategic industries.

Any relaxation to broaden funding channels to include well-capitalized investors would come at a time when traditional fiscal support has become harder to sustain, the sources said, adding discussions are at an early stage and subject to change.

The NFRA did not respond to Reuters' requests for comment.

FEWER OPTIONS TO RAISE CAPITAL

The planned easing in bank ownership rules would roll back parts of a near-decade-old effort by the world's second-largest economy to curb the influence of dominant shareholders in financial institutions.

Those curbs followed the collapse of insurance giant Anbang Group and the failure of Baoshang Bank and included orders barring major shareholders from abusing their rights to interfere with operations of the banks or insurers.

The state takeover of Baoshang Bank was triggered by the improper and illegal use of bank funds by Tomorrow Holdings, which held 89 percent of the bank's shares, leading to a serious credit crisis, according to a central bank statement at that time.

China's sovereign fund and provincial government-backed investment firms control most large, listed banks, while insurers, asset managers and central government-owned conglomerates are among major shareholders.

Tighter ownership rules and limited access to private capital, especially for smaller regional lenders, have left China's banking sector largely reliant on state recapitalisation in recent years.

Earlier this month, China said at its annual parliamentary meeting it would inject 300 billion yuan (US$44 billion) into state-owned banks this year to guard against systemic risk, following a roughly US$72 billion recapitalisation last year.

As part of the ongoing discussions, the regulator is also mulling easing shareholding restrictions for large state-owned insurers' investments in banks, said a person, adding the aim is to channel those investments into smaller city-commercial banks.

Several large insurers have already hit the 5 percent shareholding cap in two commercial banks and therefore must keep investments in any additional banks below that threshold, analysts said.

'CAPITAL REPLENISHMENT'

China's major state-owned banks have capital levels that meet regulatory thresholds, but face pressure to replenish buffers as the need to support the economy will continue to push up risk-weighted assets, according to a Fitch report.

Chinese lenders plan to direct more credit to technology-focused firms, bankers have said, as Beijing steps up its push to embed artificial intelligence across the economy.

While this offers banks a fresh source of lending growth, analysts warn the nascent nature of the targeted companies and the lack of proper collateral in some cases could pose asset-quality risks.

Smaller, regional banks face even greater challenges in bolstering their capital than their larger peers, as they grapple with narrower profit margins and greater pressure to dispose of bad loans.

China's top leadership, meanwhile, has vowed to "strengthen capital replenishment through multiple channels", according to a government work report delivered at the annual meeting of the National People's Congress earlier this month.

Reuters