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01963 BCQ
RTNominal down5.020 -0.070 (-1.375%)
Research Report

10/08/2020 17:23

Resumption of placements credit positive for Chinese banks

[ET Net News Agency, 10 August 2020] Moody's Investors Service said in a new report
that the resumption of equity raising via private placements by Chinese regional banks
after a three-month hiatus is credit positive, as it will strengthen their capital
positions and effectively provide a means of bailout.
"The China Securities and Regulatory Commission (CSRC) has resumed the approval process
in May 2020 and has approved 13 cases so far this year, compared to 37 in 2019. We expect
a pick-up through the rest of the year as authorities process waiting applications and as
financial sentiment improves," said Ray Heung, a Moody's Senior Vice President.
"These unlisted regional banks are generally weak compared to larger banks, with lower
capitalization, less access to capital and higher asset risks in the current environment.
The resumption of private placements provides them with a very timely channel to support
their capital positions," added Heung.
Private placements are also emerging as a channel for tailored government participation
in the recapitalization of banks, as reflected by the heavy participation of companies
controlled by regional governments and the central government.
There are considerable policy incentives for the government to use private placements as
a policy tool to support regional banks, as these banks are key credit providers to local
economies and privately-owned enterprises, especially micro, small and medium-sized
enterprises (MSMEs).
Private placements also allow for a more differentiated approach to bank rehabilitation,
contrasting the government's previous approach to recapitalizing and restructuring larger
banks. This shift is in line with Moody's long-held view that the form and level of
support offered by the government will increasingly diverge to reflect the systemic
importance of distressed institutions.
Finally, some banks are bundling their equity raising with the sales of nonperforming
loans - a practice that has mixed credit implications. While such sales will lower banks'
credit costs, the resultant risk for local government-related entities could raise
opaqueness and potential moral hazards. (KL)

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