Small banks raise capital for stricter rules

China's small banks are intensifying their efforts to attract funds in the hope of preventing the current cash crunch from developing into a failure to meet upcoming new capital rules that require higher money reserves.

According to Shanghai-based financial data provider Wind Information, by the end of November, financial bonds launched or planned to be launched by small Chinese-funded banks had accumulated to 38.07 billion yuan (6.05 billion U.S. dollars) since the beginning of 2012, nearly 50 percent higher than the figure for 2011.

In the past week, Huarong Xiangjiang Bank announced a sale of subordinated debts worth up to 1.5 billion yuan in a bid to raise its core capital adequacy ratio. There followed announcements by Zhejiang Tailong Commercial Bank and Bank of Dongguan of similar plans worth up to 3.5 billion yuan and one billion yuan, respectively.

The moves come after a new banking capital regulation that is set to take effect on Jan. 1, 2013, in accordance with Basel III rules formulated in 2010 by G20 countries.

According to the regulation stipulated by the China Banking Regulatory Commission (CBRC) in June, the core capital adequacy ratio for "systematically important banks" should reach a minimum of 9.5 percent before the end of 2013.

Other banks, including small banks, have been obligated to raise their core capital to no lower than 8.5 percent of their total assets by the end of 2016.

While most of the major banks reached the new standards within the first three quarters of 2012, relatively lower capital adequacy ratios are still prevalent among their smaller counterparts, according to a report by the CBRC.

Given the conditions of the small banks and the government's support to the credit demand of micro-and-small-sized enterprises, issuing bonds may continue to be the main method for small banks to reinforce their capital reserves, according to analysts.