Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

Fitch: Chinese Lender Needs $50Bln Bailout

BEIJING -- Industrial & Commercial Bank of China, the nation's biggest lender by assets, needs at least $50 billion to clear its bad loans, more than three times a bailout announced Thursday, Fitch Ratings said.

The $15 billion central bank bailout is a third less than that provided to Industrial Bank's two biggest competitors in December 2003, leaving the Beijing-based lender needing private funding to boost its capital to the minimum required by regulators.

"We can't see any other possible alternative but another capital injection" by the central bank, said David Marshall, Hong Kong-based managing director at Fitch, a credit rating company. "Maybe they are fudging it a bit by injecting some money now and the bank has to meet certain targets, and then they'll put in more money."

China's top four banks had $188 billion of bad loans at the end of September, 15.7 percent of total lending, a figure that is swelling as the government moves to slow an economy growing at record pace. Industrial Bank, which has 100 million customers, three times the population of Canada, needs to cut bad loans totaling about 700 billion yuan ($84.6 billion), or a fifth of total lending.

China's top banking regulator, Liu Ming-kang, said last month he would assist Industrial Bank with a reorganization this year needed to prepare the bank to sell shares to the public.

The government bailout "will fundamentally relieve the bank of the historical burdens that have long stemmed healthy operations and development at the bank," Jiang Jian-qing, Industrial Bank's president, said in the statement.

The bailout will help Industrial Bank increase its capital adequacy ratio, a measure of financial strength, to 6 percent, the People's Bank of China said in a statement Thursday. The bank, the 26th biggest in the world by assets, will be allowed to sell subordinated debt to increase its capital to the minimum 8 percent required by regulators.

Bank of China, the nation's No. 2 lender, and China Construction Bank, which ranks third, received $22.5 billion each in public funds to reduce bad loans and prepare for similar share sales. The nation's four largest banks are all state-owned.

"The capital injection is much less than I expected because Industrial Bank is bigger than either Bank of China or Construction Bank," said Yuan Lin, a Shanghai-based analyst at BOC International Holdings. "This is only the first step that is to solve the capital adequacy issue."

The bank said in a statement on its web site today that the bailout, made with China's foreign exchange reserves, would help its preparations to sell shares at home and overseas.