China Merchants Bank gets approval to issue new shares

China Merchants Bank, the Chinese mainland's sixth biggest bank by assets, has received official approval from the China Securities Regulatory Commission (CSRC) to issue about 3.07 billion new A-shares to its existing shareholders, according to a filing that it posted on the Shanghai Stock Exchange Wednesday.

The bank said it will issue the shares as soon as possible within the validity period of six months. It is the first bank on the mainland to be given approval to issue new shares so far this year.

The bank has been waiting to issue new shares since July 2011, when it tabled plans to raise as much as 35 billion yuan ($5.70 billion) on the Chinese mainland and in Hong Kong in order to improve its capital adequacy ratio.

However, it took until now for it to gain final approval, which was granted "mainly due to the bank's financing pressure," according to Zhang Xin, an analyst from Guotai Junan Securities.

According to the CSRC, the minimum capital adequacy requirement for "non-systematically important banks" is 10.5 percent. For lenders, the minimum core capital adequacy requirement is 8.5 percent.

At the end of the first quarter this year, China Merchants Bank reported a capital adequacy ratio of 11.96 percent and a core capital adequacy ratio of 8.45 percent, according to the company's first-quarter financial report released in April.

Chinese banks are all facing financing pressure, and other banks are likely to try to raise funds through issuing bonds or other means, Zhang told the Global Times.

According to a report by the Wall Street Journal Monday, Chinese mainland banks need to raise $50 billion to $100 billion in the next two years to keep capital ratios at current levels, citing figure from ChinaScope Financial, a Hong Kong-based research firm.

"China's reforms to liberate the country's interest rate regime by removing all controls on lending interest rates is one of the reasons banks need to raise more funds," Zhang said.

China Merchants Bank shares in Shanghai closed at 10.91 yuan Wednesday, down 1.36 percent.