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Policy banks get $90b cash infusion

Chen Jia
Updated: Aug 19,2015 8:52 AM     China Daily

China’s foreign exchange regulator injected more than $90 billion into the country’s policy banks during July to strengthen support for both overseas investments and domestic government-led construction projects.

The Sycamore Tree Investment Platform, a company owned by the foreign exchange reserve regulator, the State Administration of Foreign Exchange, injected $48 billion into the China Development Bank on July 15, and $45 billion into the Export-Import Bank of China on July 20, said Xuan Changneng, head of the Financial Stability Bureau of the People’s Bank of China, the central bank, on Aug 18.

According to official data, China’s foreign exchange reserves dropped to $3.65 trillion by the end of July, a fall of $42.5 billion from June.

Xuan said raising capital will remain a central part of the massive reform process which started on April 12 within the country’s three major policy banks, the other being the Agricultural Development Bank of China, which will focus on diversifying their range of financial services.

The CDB will be transformed into a “development-oriented financial institution” to support the country’s development strategy, while the Export-Import Bank will concentrate on financial support for enterprises seeking opportunities overseas, said Xuan.

After the latest cash injections, the Ministry of Finance is largest shareholder in CDB with 36.54 percent of the stake. The bank’s total registered capital has increased to 421.2 billion yuan ($65.76 billion) from the previous 306.7 billion yuan.

The sovereign wealth fund’s subsidiary Central Huijin Investment Ltd owns 34.68 percent, the foreign exchange regulator 27.19 percent, with the remainder (1.59 percent) held by the social security fund.

The Export-Import Bank’s registered capital has increased to 150 billion yuan, up from 5 billion yuan. The foreign exchange regulator owns 89.26 percent of its shares with the remaining 10.74 percent held by the Finance Ministry. The CDB’s capital adequacy ratio has now improved to 11.41 percent from 8.78 percent, and the Export-Import Bank’s to 12.77 percent from 2.26 percent.

“This capital injection from the foreign exchange reserves will help enhance support of the country’s development plans, including the Belt and Road Initiative, shantytown-renovation projects, the Beijing-Tianjin-Hebei Coordinated Development Project, and international cooperation in the manufacturing sector,” said Xuan.

Once the reform plans are completed, the banks’ capital adequacy will be 10.5 percent, more than the 8 percent required by Basel III, the global voluntary regulatory framework on bank capital adequacy. Previously there has been no requirement on the banks’ capital adequacy ratio, making it hard to supervise credit risks.