Small and Medium-Sized Banks Actively Build Long-Term Capital Replenishment Mechanisms

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, 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 has been one of the methods for small and medium-sized banks to boost capital in recent years. Data shows that banks mainly achieve capital increases through targeted 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 for capital increases.

Recently, Hubei Bank disclosed its private placement report, completing a private 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 of directors received letters of intent from two major shareholders, Jiujiang City 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’ internal capital replenishment through retained earnings has been limited, further increasing capital pressure. Many small and medium-sized banks have relied on external capital sources, such as policy-driven capital increases, shareholder investments, IPOs, additional share issues, 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 commercial 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 the end of Q3, the ratios for city commercial banks, rural commercial banks, and foreign banks have declined.

Du Juan, a special researcher at SoShang Bank, told Securities Daily that small and medium-sized banks bear social responsibilities such as supporting local economies and small micro-enterprises. With narrowing net interest margins, some small and medium-sized banks have a “quantity over price” approach, which requires certain capital to support asset deployment.

Senior investment advisor Yu Xiaoming from Jufeng Investment believes that in the future, small and medium-sized banks can build a long-term capital replenishment mechanism from four main directions: first, promoting the normalization of special bonds and coordination with fiscal and monetary policies to strengthen policy support; second, deepening market-oriented mechanisms, introducing diverse strategic investors, optimizing capital tools, and promoting mergers and acquisitions; third, improving profitability structures and refined capital management to enhance endogenous 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.