China considers easing bank shareholding limits to boost capital, sources say

SHANGHAI: China is considering easing shareholding restrictions for some major investors, people with knowledge of the matter said, in a move aimed at broadening capital-raising options for commercial banks reeling from an economic slowdown.

The National Financial Regulatory Administration (NFRA), the country’s banking sector regulator, in January held a meeting with some bank representatives to discuss the potential relaxation, said the people.

Under rules introduced in 2018, a single investor can hold 5percent or more, considered a major shareholder, in no more than two commercial banks, or can have a controlling stake in only one lender. The regulator is now weighing allowing some bank shareholders to become major investors in one to two additional lenders, said one of the people, who declined to be named as the discussions are not public.

Shareholders would need approval from the NFRA to increase their bank holdings, with the regulator reviewing their qualifications and the urgency of a bank’s capital needs on a case-by-case basis, the person said. The plan to ease ownership rules in China’s USD70 trillion banking sector, at a time when lenders’ balance sheets and asset quality have been hit by the economic downturn and the property sector crisis, has not been reported previously.

Rising geopolitical tensions and turbulent global markets are intensifying the push to bolster domestic banks’ balance sheets, as Beijing accelerates support for strategic industries. Any relaxation to broaden funding channels to include well-capitalized investors would come at a time when traditional fiscal support has become harder to sustain, the sources said, adding discussions are at an early stage and subject to change. The NFRA did not respond to Reuters’ requests for comment.

Fewer options to raise capital

The planned easing in bank ownership rules would roll back parts of a near-decade-old effort by the world’s second-largest economy to curb the influence of dominant shareholders in financial institutions.

Those curbs followed the collapse of insurance giant Anbang Group and the failure of Baoshang Bank and included orders barring major shareholders from abusing their rights to interfere with operations of the banks or insurers.

The state takeover of Baoshang Bank was triggered by the improper and illegal use of bank funds by Tomorrow Holdings, which held 89percent of the bank’s shares, leading to a serious credit crisis, according to a central bank statement at that time. China’s sovereign fund and provincial government-backed investment firms control most large, listed banks, while insurers, asset managers and central government-owned conglomerates are among major shareholders.