In a concerted effort by Beijing to bolster capital throughout its financial sector, China’s finance ministry will oversee a total of $54 billion in capital injections into state-owned banks and insurers, the companies announced on Sunday.
According to releases from both organizations, China Taiping Insurance Group will receive 7 billion yuan and China Life Insurance (Group) Co., the nation’s biggest life insurer, will receive 35 billion yuan ($5.2 billion).
Separately, People’s Insurance Company (Group) of China announced that it intended to raise up to 15 billion yuan through a private placement of A-shares to the Ministry of Finance, with the money raised going toward capital replenishment.
In addition to putting state insurers in a position to assist regulators in managing smaller, riskier insurance companies, the program might boost state insurers that were instructed to provide medium- and long-term funds to support the stock market.
Stability of the Financial Sector
Due to consistently low interest rates, the insurance industry has been struggling with declining profitability; several small and mid-sized insurers have reported declining solvency ratios.
China Reinsurance (Group) stated it will raise 3 billion yuan, and China Export and Credit Insurance Corp. stated the finance ministry will contribute 10 billion yuan to strengthen its basic capital.
According to China Life’s statement, “the injection is an important step by the country to enhance the financial sector’s ability to serve the real economy and promote the high-quality development of the financial and insurance industries,” adding that it would strengthen the group’s resilience to risks.
According to Taiping, the money would improve its solvency and other important metrics.
BANKS USE THE RECAPITALIZATION PLAN.
On Sunday, a total of 290 billion yuan in capital injections would be given the three state lenders.
The plan, which extended a financing instrument that had supported some other large state banks last year, was originally introduced at an annual legislative meeting in March of this year.
Two of the biggest state banks in the nation, Agricultural Bank of China and Industrial and Commercial Bank of China, announced plans to raise up to 160 billion and 100 billion yuan, respectively, through private A-share placements to the finance ministry, China National Tobacco Corp, and its subsidiaries.
In an effort to maintain credit expansion as Beijing relies on state banks to support growth, both lenders stated that the revenues would be used exclusively to replace core Tier 1 capital.
The second-largest economy in the world continues to be hampered by weak credit demand, which has also been reducing the banking industry’s profitability.
The finance ministry will provide 30 billion yuan to the Export-Import Bank of China, one of the nation’s three policy lenders, therefore strengthening the bank’s capital base.
