China's megabanks will have greater ability to support national strategies, thanks to proposed capital injections from the central government. The injections would boost the availability of funds to support the country's growth amid tariff headwinds, if needed. The capital also enhances the megabanks' loss absorption buffer amid profitability strains.
What's Happening
On March 5, 2025, at their annual "Two Sessions" meetings, political leaders announced plans to issue Chinese renminbi (RMB) 500 billion in special government bonds in 2025 to recapitalize the megabanks. This is part of the capital injection plan announced in September 2024, and reportedly amounting to RMB1 trillion.
Why It Matters
The injection will enhance the megabanks' capital position to fund loan expansion. The six megabanks together account for about half of commercial banks' total assets and contribute significantly to China's economic reform. Except for Bank of Communications Co. Ltd. (BoCom), which has had loan growth closer to the system average, the other megabanks have had strong growth in their loan books over the past three years. Most smaller banks slowed down growth during this period to manage their risks and capitalization.
China's growth ambitions will be supported. Megabanks play an important role in supporting the government's social and economic initiatives via lending to policy promoted areas. Capital injections will strengthen their ability to implement national strategies where needed. We believe the megabanks will continue to prioritize areas such as inclusive finance, advanced manufacturing, and green energy with the fresh capital.
Chart 1
Banks will have more breathing room. In our view, the plan will help mitigate the pressure from weakening internal capital generation and give the banks more flexibility to grow while maintaining a sufficient capital buffer. This is important amid China's rate-cut cycle and continued strains on profitability from earnings concessions.
Megabanks are the major executors of policy initiatives such as expanding inclusive finance at affordable rates, mortgage repricing, and fee reduction. Given their market share, the megabanks' financial health is vital to the system's stability. Besides BoCom, the other five are Industrial and Commercial Bank of China Ltd., China Construction Bank Corp., Bank of China Ltd., Agricultural Bank of China Ltd., and Postal Savings Bank of China Co. Ltd.
Injecting capital into banks is more efficient than the government's direct investments.
- Banks have high inherent leverage, whereby RMB1 of investment in banks' capital could translate to more than RMB12 of lending, based on their leverage ratio.
- Megabanks' satisfactory underwriting standards should also help the government to deploy capital effectively into commercially viable projects, even if margins might be low. This will reduce the risks of conflict of interest and lower government officials' need to juggle between political objectives and financial risks.
What Comes Next
Differing allocation among the six banks. We don't think the RMB1 trillion will be evenly shared by the six banks, given their different size and capitalization level. Overall, we believe this move will support the megabanks' capitalization, which we currently assess as neutral to their creditworthiness.
Above average growth Our base case assumes China's megabanks' average growth rate could still be higher than the system level to drive the country's economic development amid tariff headwinds.
Editor's Note
S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly (see our research here: spglobal.com/ratings).
Related Research
- Fintech Brief: Chinese Banks Seeking Efficiency Via DeepSeek Could Bring Underwriting Risk, March 3, 2025
- China's Digital Renminbi May Curb Banking Income, Nov. 5, 2024
- Credit FAQ: China's Digital Renminbi May Curb Banking Income, Oct. 25, 2024
- China's Digital Renminbi May Curb Banking Income, Sept. 24, 2024
This report does not constitute a rating action.
| Primary Credit Analyst: | Xi Cheng, Shanghai + 852 2533 3582; xi.cheng@spglobal.com |
| Secondary Contacts: | Ryan Tsang, CFA, Hong Kong + 852 2533 3532; ryan.tsang@spglobal.com |
| Ming Tan, CFA, Singapore + 65 6216 1095; ming.tan@spglobal.com |
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