A number of banks have thrown out financing solutions with strong demand for core capital

Reporter Wang Kejin reported from Beijing

Recently, at the same time as the disclosure of the third quarterly report, a number of listed banks have thrown out financing plans to supplement core capital.

For example, Zheshang Bank issued a pre-allotment plan, and the total amount of funds to be raised by the proposed allotment shall not exceed 18 billion yuan, which will be used to supplement the core Tier 1 capital. Wuxi Bank issued a non-public A-share stock plan, which intends to raise a total of no more than 2 billion yuan to supplement core Tier 1 capital. In addition, the second extraordinary general meeting of shareholders of Qilu Bank in 2021 passed the proposal to publicly issue A-share convertible corporate bonds.

Whether it is a rights issue, a fixed increase or a convertible debt-to-equity swap, the purpose is to replenish the core Tier 1 capital of the bank. In the eyes of industry insiders, core Tier 1 capital is the scarcest and most difficult to replenish. And a few days ago, the list of systemically important banks in China was released, and the supervision has additional capital requirements for systemically important banks, and the increase of additional capital means that banks need to increase capital, especially the supplement of core Tier 1 capital.

A number of listed banks disclosed the need for "blood replenishment"

On October 30, Wuxi Bank issued an announcement that the number of non-public A-share shares to be issued will not exceed 320.5 million shares, and the total amount of funds raised will not exceed 2 billion yuan, which will be used to supplement core Tier 1 capital after deducting related issuance expenses.

According to the third quarterly report, as of September 30, 2021, the capital adequacy ratio of Wuxi Bank was 13.94%, the Tier 1 capital adequacy ratio was 9.78%, and the core Tier 1 capital adequacy ratio was 8.41%. Wuxi Bank said in the announcement that in the future, the sustainable development of the bank's business and the continuous improvement of asset scale will further increase capital consumption. Therefore, in addition to the accumulation of their own income retention, it is still necessary to consider supplementing capital through equity financing to ensure the level of capital adequacy.

A bank insider said: "The success of the fixed increase can be seen in the shareholders' support and long-term optimism about the bank. The fixed increase will help banks expand the scale of capital, improve the quality of capital, improve the level of profitability and anti-risk ability, and enhance the core competitiveness. ”

In addition to Wuxi Bank's intention to raise funds through equity, Zheshang Bank also announced that the total amount of funds raised in the proposed rights issue will not exceed RMB18 billion, and the net proceeds after deducting the issuance fee will be used to supplement the bank's core Tier 1 capital.

The reporter noted that the allotment fundraising that had been stagnant for 8 years was restarted this year. The so-called allotment of shares refers to the financing behavior of a listed company that places a certain number of newly issued shares to the original shareholders according to their shareholding ratio and at a specific price lower than the market price according to the needs of the company's development, in accordance with relevant laws and regulations and corresponding procedures.

Allotment financing has certain advantages. "For example, if there are few constraints on the use of funds, Tier 1 capital can be directly replenished, and the refinancing cost is relatively low." Zhou Maohua, an analyst in the financial market department of Everbright Bank, said.

Li Guangzi, director of the Banking Research Office of the Institute of Finance of the Chinese Academy of Social Sciences, said: "The allotment of shares generally does not change the original equity structure, and the control of shareholders will not be diluted; the allotment of shares is mainly for old shareholders, the probability of success of the allotment is high, the procedure is relatively simple, and so on." ”

In addition, Qilu Bank held a general meeting of shareholders on October 29 to resolve and pass a number of proposals on the issuance of convertible corporate bonds. According to the announcement disclosed in the previous period, Qilu Bank intends to issue convertible corporate bonds of not more than 8 billion yuan.

Lou Feipeng, a researcher at the Postal Savings Bank of China, told reporters: "Convertible bonds are hybrid capital bonds with additional transfer options for ordinary corporate bonds, which are only used as ordinary bonds before the conversion and have a small amount of money included in the capital, and only after the conversion can the core Tier 1 capital be replenished." Due to the additional investor's option to convert shares, the coupon rate of the convertible bonds is lower than that of corporate bonds, and the conversion part is equivalent to the issuer issuing new shares to investors at the transfer price. Although convertible bonds also face the problem of higher issuance costs, it is relatively easier to issue convertible bonds than core Tier 1 capital supplementary instruments such as IPOs, gifts and rights issues. ”

"Craving" scarce core Tier 1 capital

The above three banks intend to "replenish blood" through equity allotment, fixed increase and convertible bonds, etc., with the purpose of replenishing core Tier 1 capital. Li Guangzi said: "Core Tier 1 capital is the most scarce in banks. ”

According to the latest data from the China Banking and Insurance Regulatory Commission, at the end of the second quarter of 2021, the core Tier 1 capital adequacy ratio of commercial banks (excluding branches of foreign banks) was 10.50%, down 0.14 percentage points from the end of the previous quarter; the Tier 1 capital adequacy ratio was 11.91%, down 0.01 percentage points from the end of the previous quarter; and the capital adequacy ratio was 14.48%, down 0.03 percentage points from the end of the previous quarter. The proportion of core Tier 1 capital decline in commercial banks is also the highest.

On October 15, the Central Bank and the China Banking and Insurance Regulatory Commission jointly released the list of systemically important banks in China, and a total of 19 banks were selected in the first batch of lists, including 6 state-owned commercial banks, 9 joint-stock commercial banks and 4 city commercial banks. In terms of additional regulatory indicator requirements, systemically important banks are divided into five groups, and the additional capital requirements of 0.25%, 0.5%, 0.75%, 1% and 1.5% of the additional capital of the first to five groups of banks are applied, and the additional leverage ratio is 50% of the additional capital, which is 0.125%, 0.25%, 0.375%, 0.5% and 0.75% respectively. It is worth mentioning that the requirements of systemically important banks for bank capital are mainly reflected in the additional capital requirements and additional leverage ratios, which need to be met by the core Tier 1 capital and Tier 1 capital of the bank respectively. Therefore, it also means that banks need to increase their capital, especially to supplement core Tier 1 capital.

Therefore, in the future, the demand for "blood replenishment" of commercial banks may increase. Wang Yifeng, an analyst at Everbright Securities, said that commercial banks mainly have two choices: endogenous capital supplementation and exogenous capital supplementation. In terms of endogenousness, banks should strengthen the control of debt costs, stabilize the interest rate differential between deposits and loans, etc., to avoid an excessive decline in ROE levels; actively promote the transformation to asset-light business; if they face greater pressure to meet the standards, they can consider flexibly adjusting the dividend ratio, but they will also face some secondary problems. In terms of exogenousity, it is also optional to issue convertible bonds at the opportunity to promote the conversion of major shareholders into shares to supplement core Tier 1 capital; to promote the use of advanced capital measurement methods to achieve capital savings; and to target the advantages of banks' own endowments, such as fixed increases and allotments.

Looking forward to the future, the "2021 China Banking Industry Development Report" released by the Banking Association of China pointed out that commercial banks will continue to optimize capital management and supplementary methods, optimize capital measurement according to regulatory orientation, increase capital refinement management, and at the same time, support the original shareholders' allotment of shares through new models, attract institutional investors to increase investment, and broaden the channels for exogenous capital replenishment. At the same time, in order to further smooth equity financing, reasonably reflect the intrinsic value of the company, and promote the company's stock price to be at a reasonable level, in the future, listed banks will strengthen market value management by improving their operating capabilities, improving management level, strengthening communication and publicity guidance.

(Editor: Zhu Ziyun Proofreader: Peng Yufeng)