China will continue to increase the issuance of local government special purpose bonds to help small and medium-sized banks replenish their capital, which is an important measure to enhance their risk resilience, officials said. regulators and industry experts.
Allocation of a combined 320 billion yuan ($47.37 billion) quota of such bonds is estimated to be completed by the end of August, an unnamed China Commission official said. banking and insurance regulators in a recent interview with China Banking and Insurance. Insurance News, a daily newspaper based in Beijing.
The CBIRC will urge local governments to submit their special purpose bond issuance plans as soon as possible and to expedite the approval of such bonds so that they can play an active role in preventing risk, stabilizing the economy and promoting growth, the official said.
In the first half of the year, the State Council, China’s Cabinet, granted a combined quota of 103 billion yuan of local government special purpose bonds to Liaoning, Gansu and Henan provinces and Dalian, in Liaoning Province, said Qi Xiang, spokesperson and head of the law and regulation department of the CBIRC, at a press conference on Thursday.
At the same time, the regulator will guide small and medium banks to replenish their capital through market-oriented means and encourage such banks to introduce various types of qualifying capital, including foreign capital, Qi said.
“Capital replenishment through local government special-purpose bond issuance has been an innovative way for China in recent years to accelerate the recapitalization of small and medium-sized banks. It is conducive for these banks to expand their capital sources, increase their capital strength and improve their capacity for steady development,” said Dong Ximiao, chief researcher at Merchants Union Consumer Finance Co Ltd.
For the next step, China should accelerate the establishment of a long-term capital replenishment mechanism for small and medium banks. For example, regulators should optimize shareholder requirements where appropriate, simplify approval procedures and help these banks introduce qualified shareholders. In addition, regulators should also ease market access restrictions for small and medium banks, help them issue preferred stocks, perpetual bonds, convertible bonds and Tier 2 capital bonds, and step up efforts to help more quality small and medium banks get priority over others to go public, Dong said.
Issuing local government special purpose bonds is a way to help the minority of small and medium-sized banks in China that cannot achieve sustainable development on their own or replenish their capital through equity-based approaches. market, said Zeng Gang, deputy director general of the National Institution for Finance and Development.
“During the capital replenishment process, small and medium banks need to mitigate risk. This means that capital increases are usually accompanied by reforms of these banks. Currently, China mainly carries out such reforms through mergers and acquisitions, which provides a solid foundation for the long-term sustainable development of small and medium banks in many regions,” Zeng said.
For urban commercial banks, rural credit unions and village banks that are relatively small in terms of total assets and have operational difficulties, it is realistic to promote institutional reforms and build their risk resilience by creating urban commercial banks at the provincial level and municipal banks. mid-level rural commercial lenders through mergers and acquisitions, said Dong of Merchants Union Consumer Finance.
He advised local governments to introduce market-based mechanisms during the M&A process to make appropriate arrangements in areas such as ownership structure, restructuring of financial institutions and senior management appointments. .
In addition, China’s top banking and insurance regulator continues to monitor the risks of small and medium banks and has stepped up efforts to manage non-performing assets. In the first half, these banks in China disposed of non-performing loans totaling 594.5 billion yuan, up 118.4 billion yuan from the same period a year earlier, Qi said. .