China's Ministry of Finance will inject $54 billion, or about 72 trillion won, into state-owned insurers and banks to bolster the financial system's capital buffers.
China Life Insurance Group, the country's largest life insurer, and China Taiping Insurance Group said they will receive 35 billion yuan (7 trillion won) and 7 billion yuan (1 trillion won), respectively, Reuters reported on the 6th. People's Insurance Company of China Group said it will pursue a private placement of A shares worth up to 15 billion yuan (3 trillion won) to the Ministry of Finance.
The move is expected to help shore up the capital of state-owned insurers, which the government has directed to support the stock market. It is also likely to expand their role in managing smaller insurers, as the industry struggles with a prolonged period of low interest rates. China Export & Credit Insurance Corp. said the ministry will inject 10 billion yuan, while China Reinsurance Group said it plans to raise 3 billion yuan.
China Life Insurance Group said in a statement that the capital injection is an important national measure to strengthen the financial sector's capacity to serve the real economy and to promote high-quality development of the finance and insurance industries.
State-owned banks will receive 290 billion yuan in capital. Agricultural Bank of China and Industrial and Commercial Bank of China, among the country's largest state lenders, said they will pursue private placements of A shares worth up to 160 billion yuan and 100 billion yuan, respectively. Investors include the Ministry of Finance and China National Tobacco Corp.
The measure aims to ensure banks can keep supplying credit as the government presses state lenders to expand loans to stimulate the economy. Weak loan demand has been cited as a drag on China's recovery. The Export-Import Bank of China said the ministry will contribute 30 billion yuan to strengthen its capital base.
That has also weighed on profitability across the banking sector. Chinese banks posted an average capital adequacy ratio of 15.26% as of June, while their Tier-1 capital ratio, the core measure of loss-absorbing capacity, stood at 10.72%, according to Bloomberg. The capital adequacy ratio shows how much of a bank's total capital consists of its own funds set aside for times of stress. The Tier-1 ratio measures the share of high-quality capital that serves as a genuine buffer.
