Key Highlights:

• China's four largest state-owned banks plan to raise a combined 520 billion yuan ($71.6 billion).
• The fundraising involves private placements with significant backing from the Chinese finance ministry.
• This initiative comes as policymakers aim to strengthen the financial sector amid economic slowdown.

In a strategic move to reinforce their financial standing, four of China’s major state-owned banks announced plans over the weekend to raise an aggregate of 520 billion yuan (approximately $71.6 billion) through private placements. This decision was significantly influenced by a commitment from the finance ministry to support these banks in bolstering their core tier-1 capital. The Ministry is expected to become a controlling shareholder in some cases, reflecting the government’s ongoing efforts to stabilize the banking sector amidst a sluggish economic landscape.

According to filings, Bank of China will aim to raise up to 165 billion yuan, while China Construction Bank plans to secure 105 billion yuan. Additionally, Bank of Communications seeks to obtain as much as 120 billion yuan, and Postal Savings Bank of China is targeting 130 billion yuan in new capital. The capital raise is a crucial response to a backdrop of flat profits and decreasing margins faced by these banks, heavily impacted by a slow-growing economy and a teetering property sector.

The government has underscored its commitment to recapitalize the banking industry, with recent initiatives facilitated through the National People’s Congress approving the issuance of 500 billion yuan in special bonds aimed at injecting liquidity into the market. These steps are seen as essential to revitalize not just the banks but also to stimulate broader economic growth, which has been targeted at around 5% for the year, a figure echoing last year's goals.

The stock offerings, set to be executed on the Shanghai Stock Exchange, are part of a larger recapitalization strategy, marking significant involvement from government-backed investors, including major players like China Tobacco and China Mobile. Each bank's new shares are expected to bypass prior trading restrictions following a five-year lock-up period. This capital infusion represents about 30% of each bank’s total outstanding shares, which reflects a calculated approach to stabilizing the financial sector as it navigates through turbulent economic conditions.

For further details, you may visit South China Morning Post.