AgBank aims to raise $15.8 billion in China’s biggest follow-on share offering

Bloomberg

Agricultural Bank of China Ltd. said it aims to raise as much as 100 billion yuan ($15.8 billion) in what would be the biggest-ever follow-on share offering by a Chinese company as it moves to replenish capital.
China’s third-largest lender will sell up to 27.5 billion shares to seven state-linked entities including the country’s Finance Ministry, Central Huijin Investment Ltd. and China National Tobacco Corp., the Beijing-based company said after Monday’s market close.
The fundraising comes as Chinese banks prepare to shift to more stringent accounting standards known as IFRS9 this year, and as policymakers intensify their efforts to curb leverage and rein in shadow banking. The regulatory developments will add to pressure on Chinese banks’ capital ratios, economists at UBS Group AG have warned.
China’s financial regulators on Monday urged banks to be innovative in raising capital and said they would facilitate sales of perpetual bonds, tier-2 capital bonds and other capital tools.
The International Monetary Fund said in December that Chinese banks should increase their capital buffers to protect against any sudden economic downturn following a credit boom. In a worst-case scenario, IMF stress tests suggested the country’s lenders would face a capital shortfall equivalent to 2.5 percent of China’s gross domestic product — about $280 billion in 2016 — together with ballooning soured loans.
Agricultural Bank’s capital adequacy ratio stood at 13.4 percent at the end of September, the lowest among the nation’s five-largest state lenders, while its core tier-1 ratio was 10.6 percent. Nevertheless, that is comfortably above the minimum set by the China Banking Regulatory Commission for systemically-important banks such as Agricultural Bank.
The CBRC requires such banks to have a minimum capital level of 11.5 percent by the end of 2018, with a core tier-1 ratio at least 8.5 percent.
In a separate statement, Agricultural Bank reported that profit rose 5 percent to 193 billion yuan in 2017, lifted by higher lending margins and improved asset quality.

China, Hong Kong at risk of banking crisis, warns BIS
Bloomberg

China, Canada and Hong Kong are among the economies most at risk of a banking crisis, according to early warning indicators compiled by the Bank for International Settlements. Canada — whose economy grew last year at the fastest pace since 2011 — was flagged thanks to its households’ maxed-out credit cards and high debt levels in the wider economy. These same issues also afflict China and Hong Kong, according to the study.
“The indicators currently point to the build-up of risks in several economies,” analysts Inaki Aldasoro, Claudio Borio and Mathias Drehmann wrote in the BIS’s latest Quarterly Review published.
The study offered some surprising results: for example, Italy wasn’t shown as being at risk, despite its struggles with a slow-growing economy and banks that are mired in bad debts. While China was flagged, a key warning indicator known as the credit-to-gross domestic product “gap” showed an improvement, said the BIS, known as the central bank for central banks.