chinese-banks-balancing-act

Chinese banks' balancing act

China's banks will need to raise large amounts of capital this year to continue their aggressive lending and still meet the regulators' capital adequacy requirements.

China's listed banks intend to raise nearly $30 billion from the equity markets in 2010 to boost their capital adequacy ratios so that they can continue to pump money into the economy under the government's order to ensure sustainable growth.

China's regulators intend to tighten credit to stave off potential inflation and asset bubbles, but at the same time they want to provide sufficient capital to avoid project defaults leading to bad loans. Chinese banks face a conflict of interest in that they have to follow the government's command but also want to make profits by aggressively providing loans.

The banks' current capital levels are close to the regulators' requirements of a 12% total capital...

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