The decision comes against a backdrop of growing pressure on the Chinese financial sector, notes the Insurance Journal. Banks’ interest margins have fallen to record lows, whilst weak demand for loans is limiting their ability to boost profits and capital.
The day before, ICBC and Agricultural Bank announced plans to raise up to 100 billion yuan ($15 billion) and 160 billion yuan ($24 billion) respectively. Both banks stated that they would use the funds raised to increase their core capital.
The government plans to invest 130 billion yuan ($19.5 billion) in the Agricultural Bank and 70 billion yuan ($10.5 billion) in ICBC. A further 30 billion yuan ($4.5 billion) will go to the China Export-Import Bank, 35 billion yuan ($5.25 billion) to China Life, and 15 billion yuan ($2.25 billion) to People’s Insurance. The remaining funds will be distributed amongst China Taiping, China Reinsurance and the China Export & Credit Insurance Corp.
Beijing hopes that stronger balance sheets will enable financial institutions to lend more actively to businesses and the public, and to support infrastructure projects and strategic sectors. The authorities are also seeking to mitigate risks to the financial system linked to the property market downturn, local government debt and weak consumer demand.
The market reacted cautiously. At the start of trading in Hong Kong, ICBC shares fell by 0.78 per cent, Agricultural Bank shares by 0.69 per cent, whilst People’s Insurance shares remained virtually unchanged.
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