Commercial Chinese Banks Short of Capital

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(Beijing) - First quarter reports by five joint-stock banks, the second rung of China's bank industry ladder after the five biggest state-owned banks, have revealed that behind the rapid growth in net profits, capital adequacy ratios have fallen. Some banks have dipped below the regulatory capital requirement.    

On April 28, China Citic Bank, China Merchants Bank, the Bank of Ningbo, Industrial Bank and Shenzhen Development Bank filed their first quarter report to the Shanghai Stock Exchange.

China Merchants Bank, the country's sixth largest lender, reaped 5.91 billion yuan in net profit, ranking the first among the five joint-stock banks. China Citic Bank posted 4.08 billion yuan, coming second. Industrial Bank registered 4.079 billion yuan, the third, followed by Shenzhen Development Bank with 1.58 billion yuan in net profit and the Bank of Ningbo with 498 million yuan.

In terms of net profit growth rate, China Merchants Bank, Shenzhen Development Bank and the Bank of Ningbo registered over 40 percent quarterly growth compared with the same period in 2009. Industrial Bank's net profit grew 38.68 percent compared with a year earlier while China Citic had the slowest growth pace of 26.5 percent.  

Industrial Bank's capital adequacy ratio slipped to 10.63 percent at the end of the first quarter of this year from 10.75 percent at the end of 2009, with its core capital level dimming from 7.91 percent to 7.59 percent. The minimum capital requirement for joint-stock banks was raised to 10 percent by China Banking Regulatory Commission late last year. For six largest banks, it is 11 percent.

China Citic Bank's capital adequacy dropped to 9.34 percent at the end of March, down 0.8 percentage point from the end of last year. The Bank of Ningbo had mixed performance: its core capital level dip from 9.58 percent at the end of last year to 9.07 percent at the end of the first quarter while capital adequacy ratio climbed from 10.75 percent to 10.88 percent during the time frame.

Shenzhen Development Bank fared worst among the five. Its capital adequacy ratio fell to 8.66 percent at the end of the first quarter from 8.88 percent at the end of last year as its core capital dropped to 5.46 percent at the end of the first quarter from 5.52 percent at the end of last year.

The only bank with relatively abundant capital was China Merchants Bank, which saw its capital adequacy ratio rise 1.08 percentage points to 11.53 percent in the past three months. In March, China Merchants Bank, the country's sixth-largest bank, raised 22 billion yuan to consolidate its capital base in a rights issue in Shanghai and Hong Kong.

Banking analysts estimated that China's listed banks will have to shore up capital by raising about 200 billion to 300 billion yuan in 2010. The figure was equal to the nearly half of the money raised in the mainland stock markets last year.