This month, the country’s four largest state-owned lenders have started raising a planned $73 billion in debt and equity to beef up reserves. That tally is expected to jump to more than $300 billion in the next five years, according to the banking regulator. The fundraising, along with a number of so-called bad banks being set up by provinces, is aimed at clearing up the pile of nonperforming loans sitting on the banks’ books.
It is one of most determined efforts ever by Beijing to restore health to the financial system, which is straining from a credit binge in recent years. Pushing banks to bolster their cash cushions will not only better protect them from deteriorating loans but could also help reopen the lending spigot and boost economic growth.
“They are setting up the pieces of the jigsaw for the financial system to be much less state dependent and more market driven,” said Tai Hui, chief market strategist Asia at J.P. Morgan Asset Management.