English English

By Yin Lei

Over ten Chinese banks had issued or planned to issue preferred stocks in the second half of this year to improve their capital adequacy, said a report of Shanghai Securities News on Wednesday.

This month, two Chinese banks, namely Bank of Changsha based in central China and China CITIC Bank headquartered in Beijing, announced they would issue preferred stocks to raise six billion yuan (870 million U.S. dollars) and 40 billion yuan (5.8 billion U.S. dollars) respectively.

This move followed the steps of another two banks in China that had made such announcements earlier. The fundraising target of these four banks hit a total of 266 billion yuan (38.57 billion U.S. dollars), to be used to supplement their Tier one capital that functioned as the cornerstone of their operations.

In the second half of 2018, seven banks in China have already issued their preferred stocks.

Since 2014, offering preferred stocks has become an important means for cash-strapped banks in China to enhance their capital adequacy. Compared to an initial public offering and private placement, issuing preferred stocks is easier and will become common practice in the future, said Xu Wenbing, a senior analyst of Bank of Communications.

Currently some Chinese banks have fairly healthy capital adequacy but face pressure on their Tier one capital. Preferred stocks can serve to ease such pressure and, since they are not offered publicly, will have little impact on the secondary market, said Dong Ximiao, a senior research fellow of the Renmin University of China.

Over the past few months, at least 10 Chinese banks have dispensed preferred dividends to their investors at a total of over 10 billion yuan (1.45 billion U.S. dollars).

Holders of preferred stocks of Agriculture Bank of China had received a pre-tax sum of 2.4 billion yuan (348 million U.S. dollars) as of November. Bank of Shanghai said it would pay a pre-tax amount of 1.04 billion yuan (150 million U.S. dollars) as preferred dividends.