Small and medium-sized banks actively build a long-term capital replenishment mechanism

Reporter: Xiong Yue

Recently, Chengdu Bank announced that it has received regulatory approval to increase its registered capital from 3.736 billion RMB to 4.238 billion RMB. The announcement states that the increase in Chengdu Bank’s registered capital is due to the early redemption of previously issued convertible bonds. After some of the bonds were converted into shares, the bank’s total share capital increased accordingly to 4.238 billion shares, strengthening its core Tier 1 capital.

Using convertible bond conversions to supplement core Tier 1 capital is one of the methods small and medium-sized banks have used in recent years to boost capital. Data shows that banks mainly increase capital through private placements, rights issues, and introducing strategic investors to expand and strengthen their core capital. Since the beginning of this year, over 20 banks have received regulatory approval to increase their registered capital.

Recently, Hubei Bank disclosed a private placement report, completing a share issuance of 1.8 billion shares, raising 7.614 billion RMB, all used to supplement core Tier 1 capital and improve capital adequacy ratio. After the private placement, the bank’s registered capital increased to 9.412 billion RMB.

Earlier, Jiujiang Bank announced that its board received letters of intent from two major shareholders, Jiujiang Finance Bureau and Industrial Bank, expressing their intention to subscribe to the bank’s domestic shares. In October 2025, Jiujiang Bank announced plans for a non-public issuance of no more than 860 million domestic shares and no more than 175 million H-shares. If all these shares are issued, Jiujiang Bank’s total share capital will increase from 2.847 billion shares to 3.882 billion shares, an increase of about 36%.

In recent years, due to pressures such as narrowing net interest margins, commercial banks have faced restrictions on internal capital replenishment through retained earnings, further increasing capital pressure. Many small and medium-sized banks have relied on external capital sources, such as policy-driven capital increases, shareholder contributions, IPOs, rights issues, issuance of preferred shares, convertible bond conversions, perpetual bonds, and Tier 2 capital bonds, to strengthen their capital base.

According to data from the China Banking and Insurance Regulatory Commission, by the end of Q4 2025, the capital adequacy ratios of large commercial banks, joint-stock banks, city commercial banks, private banks, rural commercial banks, and foreign banks were 18.16%, 13.58%, 12.39%, 12.55%, 13.18%, and 20.36%, respectively. Among these, city commercial banks, private banks, and rural commercial banks have relatively lower capital adequacy ratios, and compared to Q3, the ratios for city commercial banks, rural banks, and foreign banks have declined.

Du Juan, a special researcher at Sichuan Commercial Bank, told Securities Daily that small and medium-sized banks play social roles such as supporting local economies and small micro-enterprises. With narrowing net interest margins, some small and medium-sized banks have a “volume-based” demand to compensate for price reductions, which requires sufficient capital to support asset deployment.

According to Yu Xiaoming, senior investment advisor at Jufeng Investment, in the future, small and medium-sized banks can build a long-term capital replenishment mechanism through four main approaches: first, promoting the normalization of special bonds and strengthening policy support; second, deepening market-oriented mechanisms, introducing diverse strategic investors, optimizing capital tools, and advancing mergers and acquisitions; third, improving profitability structures and refined capital management to enhance internal capital generation; and fourth, exploring new tools such as green capital bonds and equity financing, while leveraging financial technology to reduce costs and improve capital efficiency.

(Edited by: Qian Xiaorui)

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