Chinese lenders have been quietly recapitalising. UBS analysts estimate that over 850 billion yuan ($134 billion) was rustled up between 2014 and the end of last year, much of it from unlisted lenders. More is almost certainly needed. For many, risk has probably accumulated more quickly than capital buffers.
Bringing the aggregate Tier 1 capital adequacy ratio for Chinese banks up to 10 percent would require 1 trillion yuan, UBS reckons. In addition, the country's lenders are preparing to adopt new accounting standards this year that affect how liabilities are measured and thus require them to set aside more funds for potential losses.
Some capital cushions will be harder to arrange. Smaller lenders, for example, have suffered disproportionately from the crackdown on shadow banking. Rather than receive straightforward injections from state-owned enterprises, such institutions may need to pursue perpetuity bonds, debt-for-equity swaps and the like.
AgBank, a privileged member of the so-called Big Four state-controlled lenders, needed help, too. As its name suggests, it has focused on extending credit to the rural sector, lending to some of the most impoverished borrowers in China.
That has kept its official non-performing loan ratio relatively high, though it dipped from 2.4 percent in 2016 to 1.8 percent last year.
Its share price reflects the possibility the situation could be worse. A long rally has lifted the price-to-book-value ratio of most Chinese banks to over one. AgBank trades slightly below that threshold.
The new funds will lift its core Tier 1 capital adequacy ratio up to 11.2 percent, well above the regulatory minimum. Beijing leaned on, among others, China National Tobacco and "bad bank" asset manager Central Huijin Investment to get there.
That does mean risk is being moved from one government pocket to another. AgBank is systemically important, though, and China will have to reap what it sows.