Are Beijing’s Bad Bank Loan Fears Easing?

China Construction Bank, one of the two of the big four state-owned banks that fell below the regulators’ required capital adequacy ratios in March, is scaling back its rights issue to 61.7 billion yuan ($9.2 billion) from the originally proposed 75 billion yuan. The bank has just got regulatory approval to go ahead with the capital raising in Shanghai and Hong Kong. China’s big banks have been arm-twisted into raising new capital to shore up their balance sheets and meet new capital adequacy ratios as Beijing frets about possible bad debts coming back to haunt them after the stimulus-fed new lending spree of the past two years. The modest scaling back of the rights issue and record quarterly earnings announced last week by the largest state-owned banks suggest such anxieties may be easing, if only a tad. The great unknown remains what bad debt debt lurks in the unregulated underground banking system that operates at the county and city level and where as much as 20% of the loan assets of China’s banks now lie.

This post was first published on China Bystander.

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