After more than 20 years, the Ministry of Finance will again issue special treasury bond to support large state-owned commercial banks to supplement core tier one capital. Industry insiders said that supplementing bank capital with special treasury bond would not only enhance the risk resistance and credit supply ability of large commercial banks, enhance financial stability and market confidence, but also help improve the efficiency of treasury bond. The background of this round of capital injection has changed from that of 1998. It is expected that the issuance scale of special treasury bond will be larger and the duration will be more abundant. Experts believe that after this round of capital injection is successful, large state-owned commercial banks will increase their support in areas such as infrastructure loans, inclusive small and micro loans, green loans, and agricultural loans. This round of capital injection will be based on the idea of "coordinated promotion, phased and batched, and one line, one strategy". Industry insiders predict that the order of capital injection landing may depend on the capital needs, internal processes, and external approval processes of each bank. From the data, among the six banks, Agricultural Bank of China, Bank of China, Postal Savings Bank of China, and Bank of Communications have core tier one capital adequacy ratios that are closer to regulatory requirements. Starting capital replenishment work, large state-owned commercial banks are the main force serving the real economy and also the cornerstone for maintaining financial stability. A few days ago, Finance Minister Lan Fo'an said that he would issue special treasury bond to support large state-owned commercial banks to supplement core tier one capital, improve their ability to withstand risks and provide credit, and better serve the development of the real economy. This means that after the Ministry of Finance issued special treasury bond to inject 270 billion yuan into the four state-owned banks in 1998, the tool was again used. According to Vice Minister of Finance Liao Min, the work has been launched. At present, the Ministry of Finance is waiting for various banks to submit specific plans for capital replenishment. Looking back, in particular, treasury bond has been successful in supplementing bank capital. In 1998, the Ministry of Finance issued a 30-year 270 billion yuan special treasury bond to Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank. All the funds raised were used to supplement the capital of the four banks. This bond will mature in 2028. According to the risk assets, net capital, non-performing loans, and capital adequacy ratios of the four banks, Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, and Construction Bank respectively undertook purchases of 85 billion yuan, 93.3 billion yuan, 42.5 billion yuan, and 49.2 billion yuan. Industry insiders said that under the background of special treasury bond capital injection and non-performing asset stripping, the capital adequacy ratio of the four state-owned banks has significantly improved, and the non-performing loan ratio has also declined, laying the foundation for the next step of commercial development and reform. After more than 20 years, large state-owned commercial banks will again receive capital injection from special treasury bond. However, the funding environment is vastly different from that time. "Special treasury bond has national credit endorsement, low financing cost, generally long term, and large scale. It is ideal as a core tier one capital supplement tool for commercial banks." Zhou Maohua, a macro researcher in the financial market department of Everbright Bank, told the reporter that due to changes in the macroeconomic environment, there were many differences between this round of special treasury bond investment in large commercial banks and the round in 1998. Zhou Maohua believed that this special treasury bond issue would be larger and the term of treasury bond would be more abundant. Supplementing the core tier one capital of large commercial banks can help stabilize the growth of state-owned banks' asset scale, increase support for major strategies, key areas, and weak links, and promote high-quality economic development. In 1998, the issuance of special treasury bond to inject capital into large commercial banks was more to promote state-owned banks to support China's infrastructure construction. Ren Tao, a specially appointed senior researcher at the Shanghai Finance and Development Laboratory, told reporters: "Compared to the purpose of injecting capital in 1998 to help state-owned banks resolve asset quality crises and promote reform, this round of capital injection is aimed at helping state-owned banks enhance their capital strength and better serve the real economy. It helps alleviate the capital pressure brought by the narrowing of net interest margins and the use of quantity to supplement prices, and also helps state-owned banks approach the core capital level of world-class banks and enhance international competitiveness." Why choose external channels? For banks, the main ways to supplement capital include internal accumulation and external financing. Core Tier 1 capital cannot be supplemented through capital bonds, but can only be supplemented through endogenous profits or external equity. Supplement financing. Ren Tao stated that while maintaining stable profitability, commercial banks often choose to supplement capital through internal profit retention, which can avoid dilution of equity structure and impact on the market, and the process is also simpler. When the overall market situation is improving and profitability is affected to some extent, supplementing capital through external channels such as rights issues, private placements, and bond issuances will become the main choice for commercial banks. From a data perspective, the current capital adequacy ratio of large state-owned commercial banks meets regulatory requirements. Why choose to supplement capital through external channels? Without relying on external financing, state-owned banks can basically meet the capital needs brought about by their own development through profit retention Zeng Gang, director of the Shanghai Finance and Development Laboratory, told reporters that in the long run, it is necessary to further consolidate the capital foundation of banks through capital injection. Against the backdrop of economic structural transformation and narrowing net interest margin, the profitability of the banking industry is under pressure, which imposes certain limitations on the ability to replenish endogenous capital. Zeng Gang believed that in terms of external financing, banks can supplement their core tier one capital through IPO, subsequent issuance, rights issue, and other means in the capital market. But in the current situation, these paths encounter two obstacles: on the one hand, the capital market is in a critical period of reform and development, and large-scale refinancing by state-owned banks is not conducive to market stability; On the other hand, the overall valuation of bank stocks is relatively low, with most of them having a price to book ratio below 1. Conducting additional issuances or rights issues at secondary market prices is not conducive to the preservation and appreciation of state-owned assets. In this context, the Ministry of Finance will inject capital into large state-owned banks by issuing special treasury bond, which will not cause refinancing pressure on the capital market, but will help stabilize the capital market, improve the valuation level of large state-owned banks to a certain extent, and will play a positive role in the long-term healthy development of the banking industry. Lou Feipeng, a researcher at China Postal Savings Bank, believes that timely capital injection into large state-owned commercial banks is not only helpful for their own sustainable operation, but also helps them better serve the real economy, enabling large financial institutions to play a leading role in serving the real economy and maintaining financial stability, in the context of continuous financial concessions to the real economy, declining profit growth in the banking industry, and squeezed space for capital supplementation through profit retention. Previously, Li Yunze, Director of the State Administration of Financial Supervision and Administration, stated that in recent years, large commercial banks have mainly relied on retaining their own profits to increase capital. However, as banks reduce fees and increase profitability, the net interest margin has narrowed and profit growth has gradually slowed down. Therefore, it is necessary to coordinate internal and external channels to enrich capital. After research, the national plan is to increase core tier one capital for six large commercial banks, which will be implemented in an orderly manner according to the concept of "coordinated promotion, phased implementation, and one bank, one policy". Industry insiders believe that a stronger level of capital will increase the space for commercial banks to expand their credit. According to a research report by China International Capital Corporation, the leverage ratio (total assets/shareholder equity) of banks is 14 times. In theory, a 1 trillion yuan capital injection can leverage the long-term total asset investment of 14 trillion yuan. After the bank's capital injection, its main focus will be on infrastructure loans, inclusive small and micro loans, high-tech manufacturing loans, green loans, agricultural loans, etc. CICC believes that an effective round of capital injection needs to alleviate the capital pressure on banks for at least 2 to 5 years. Therefore, assuming a capital injection to increase the core tier one capital adequacy ratio of the six major state-owned banks by 0.5 percentage points and alleviate the capital pressure on banks for 2 years, the required capital injection scale is 0.5 trillion yuan; Assuming a capital injection to increase the core tier one capital adequacy ratio of the six major state-owned banks by 1.0 percentage point and alleviate the capital pressure on banks for 5 years, the required capital injection scale is 1.1 trillion yuan. In terms of landing pace, multiple industry insiders have told reporters that considering factors such as regulatory policies increasing support for the real economy, it is expected that the speed of capital injection landing will be relatively fast after completing relevant procedures. According to the concept of "coordinated promotion, phased implementation, and one bank, one strategy", the pace of capital injection by various banks will not be synchronized, and it will depend on the bank's own capital needs, internal processes, and external approval processes. According to the semi annual reports of various banks in 2024, as of the end of the first half of 2024, the core tier one capital adequacy ratios of Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank, Postal Savings Bank of China, and Bank of Communications were 13.84%, 11.13%, 12.03%, 14.01%, 9.28%, and 10.30%, respectively. Among them, Agricultural Bank of China, Bank of China, Postal Savings Bank of China, and Bank of Communications are relatively close to regulatory requirements. In the long run, industry insiders suggest that while accepting capital injections, large state-owned commercial banks also need to improve their level of refined management and strive to achieve a dynamic balance between risk, capital, and returns. In order to maintain effective endogenous replenishment of bank capital and stable dividend ratios, it is necessary for banks to improve capital utilization efficiency, better match the needs of the real economy, and balance net interest margin and asset growth rate. For large state-owned commercial banks, this round of capital injection may have an impact on their dividend levels, but overall the degree is controllable. If banks promote the improvement of the real economy and reduce their credit costs on the basis of stronger capital strength, the dilution effect of per share dividends will be limited. In the long run, state-owned large banks can continue to maintain the characteristics of high dividend investment targets by providing better returns to shareholders, "said an industry insider. (New Society)