Banks raise record $14b offshore

Chinese lenders have raised a record amount of funds offshore so far this year, and that trend is set to continue as banks replenish capital to meet regulatory requirements, analysts said.

Data from Dealogic LLC, a financial information platform, showed that domestic lenders have so far this year raised $14 billion offshore through bond issues. Chinese lenders raised about $9 billion in 2013 through bond offerings in overseas markets.

Many issues involve overseas branches or subsidiaries of Chinese banks offering bonds in overseas markets.

For example, the Hong Kong branch of Bank of Communications Ltd is offering yuan-denominated notes to institutional investors in three tranches: 1 billion yuan ($160 million) with a three-year maturity, 500 million yuan with a five-year maturity and another 500 million yuan with a seven-year maturity.

The notes will be sold to institutional investors and listed in the GreTai Securities Market in Taiwan.

Proceeds will be used for the branch's working capital and general corporate purposes, the bank said in an announcement.

China's banking regulators have set a deadline of 2018 for domestic lenders to meet the Basel III capital requirements, a voluntary global stress-testing standard. Under that standard, a bank's Tier 1 capital adequacy ratio should be 9.5 percent.

To meet this standard, China's lenders will need to raise a combined $160 billion, according to China banking analysts at Barclays Capital in Hong Kong.

Analysts said the balance sheets of China's lenders are healthy by international standards, although their nonperforming loan ratios and balances are both rising.

"The top 10 listed banks in China all met capital requirements by the end of 2013, and lenders have taken various measures to replenish capital," said Raymond Yung, who covers financial services at PricewaterhouseCoopers LLP.

Lenders may continue to face a complicated financial environment and they should focus on the impact of interest rate liberalization and the entry of privately owned banks, said Yung.

Some lenders have also turned to the stock market to raise funds through preferred share issues, which were approved by regulators in April. Shanghai Pudong Development Bank Co Ltd, Agricultural Bank of China Co Ltd, Bank of China Co Ltd and Industrial Bank Co Ltd plan to issue preferred stocks with a combined value of some 240 billion yuan by the end of this month.

Recent targeted reserve requirement ratio cuts may also release some liquidity into the banking system, said analysts.

The cuts "would add liquidity, improve the money multiplier, boost bank lending and lower interest rates. We note that an RRR cut could be a good complement to an interest rate cut", said Chang Jian, analyst and economist at Barclays Research in a recent note.

Narrower interest rate differentials with foreign markets would reduce arbitrage incentives and capital inflows, resulting in a tightening of domestic liquidity, said Chang.

More lenders may be included in the targeted reserve cuts if they pass the central bank's exams by the end of June, reported China Economic Net on Monday.

Re-lending, targeted reserve ratio cuts or innovative financing tools may help to improve credit availability and reduce financing costs for specific sectors in the real economy, said Chang.