Beijing: Bank of China, the country's largest foreign exchange lender, said on Friday that it planned to sell up to 40 billion yuan (Dh21.5 billion) of convertible bonds to replenish its capital following a year of unprecedented loan growth in China.
The bank said the proceeds from the convertible bond sale would be used to boost its capital base and allow it to meet stricter regulatory and capital requirements.
The announcement came just days after Chinese fin-ancial regulators acted to rein in surging loan growth by ordering some banks, including Bank of China, to temporarily suspend the issuance of new loans.
Beijing is worried about rising inflationary pressures and the long-term quality of new loans, which were issued at an unprecedented pace last year and in the first two weeks of January.
Monetary easing
Chinese banks lent a total of 9,6 trillion yuan last year, more than double the volume of new loans extended in 2008, in what some economists have called the greatest monetary and fin-ancial easing in history.
In just the first two weeks of this year, Chinese banks lent 1,1 trillion yuan, according to analysts and bankers, prompting the government to raise the amount of money banks must hold in reserve with the central bank and impose lending restrictions in recent days on some banks.
Bank of China was the most aggressive of the country's large state-owned banks in expanding its loan book last year and now needs to raise more capital in order to meet stricter capital requirements.
Analysts estimate Bank of China will have to raise about 140 billion yuan over the next two years in order to maintain a total capital adequacy ratio of 12 per cent.
That is higher than the current official requirement but thought to be the minimum level regulators plan to impose on the banks. At the end of September, Bank of China's CAR was 11.63 per cent.
While Bank of China has been the most aggressive, all of the country's large banks expanded their loan books massively last year after the government ordered them to flood the economy with credit to stave off the effects of the global financial crisis.
Bank of China said that it "has adhered to the central bank's proactive fiscal policy and moderately loose monetary policy to promote growth, stimulate domestic demand, adjust structure and its loan assets have seen unparalleled rapid growth."
The bank will issue corporate bonds with maturities that could range from one to six years and will be convertible into Shanghai-listed ‘A-shares'.
— Financial Times
