Confirmed: Investment path for the "Big Six Banks" secured, receiving special national bonds support after 26 years

At the press conference of the State Council Information Office on October 12th, the specific mode of capital injection into the "six major banks" has finally yielded more definitive results.

Liao Min, Deputy Minister of Finance, revealed at the press conference that, following the train of thought of overall planning, phased implementation, and "one policy for each bank," active efforts will be made to raise funds through the issuance of special national bonds to support large state-owned commercial banks in further increasing their core Tier 1 capital.

Regarding this work, Liao Min mentioned that the Ministry of Finance has set up a cross-departmental working group in collaboration with relevant financial management and regulatory authorities, and is currently awaiting specific capital replenishment plans from each bank.

This result is in line with market expectations.

Previously, there were multiple speculations in the market regarding this round of capital injection into the six major banks, including the issuance of special national bonds and capital injection from the Central Huijin Investment Ltd., with the discussion on special national bonds being the most prominent.

It is worth mentioning that the history of the previous round of capital injection into state-owned major banks through the issuance of special national bonds can be traced back to the "98 capital injection" at the end of the last century. This means that after 26 years, state-owned major banks will once again usher in a wave of capital injection under the special national bond model.

Due to the cyclical drag in 1997, China's economic growth once fell into a difficult period of "domestic troubles and foreign aggression."

On one hand, the economy, which had long been driven by credit, fell into deflation after a tightening of credit, with high debt levels in state-owned enterprises and a large accumulation of inefficient production capacity. On the other hand, the Asian financial crisis spread, and export production pressure transmitted to the supply side.

As the original "national specialized banks" that once allocated a large proportion of credit funds to state-owned enterprises, the bad debts of the four major banks soared at one point.

In order to promote the resolution of financial risks, in 1998, the Ministry of Finance issued 270 billion yuan of 30-year special national bonds to the four major banks, with the restriction that the funds were to be used for "capital replenishment."

In terms of specific operations, the central bank first released 270 billion yuan of funds to the four major banks through targeted reserve requirement cuts. After the four major banks purchased the special national bonds, they deposited them with the central bank, and the Ministry of Finance then injected 270 billion yuan of funds into the four major banks.

Compared to the Ministry of Finance's public issuance of national bonds or direct capital injection, subscribing to special national bonds by the four major banks can avoid a large-scale bloodletting of funds in the market. Although the starting point and endpoint are both "central bank buying national bonds," it can flexibly bypass the restriction that "the People's Bank of China may not directly subscribe to national bonds."

At that time, this "firefighting" fund alleviated the urgent situation of the four major banks.

There have also been voices in the market pointing out that special national bonds involve the issuance of bonds by the Ministry of Finance with the help of the central bank, banks buying them, and banks injecting capital into themselves, with limited improvement in the banks' ability to absorb losses.

The specific details of this round of "capital injection" through special national bonds have not been announced yet, but Liao Min stated that all six major banks are listed, and capital replenishment plans need to be disclosed by each bank.

However, at present, the capital adequacy ratios of the six major banks are still higher than regulatory requirements and are showing a slight upward trend. Therefore, this round of capital injection is more of a departure from the past "active defense," and the specific operational methods are also

Former Deputy Secretary-General of the China Banking Association, Song Fengming, stated, "The two rounds of capital injection and restructuring in 1998 and 2003 had a profound impact on state-owned major banks. Currently, major banks do not have a capital shortage issue, and the capital injection is more for dynamic risk management and resource allocation needs."

Zhou Jin, Partner of Financial Services Management Consulting at PwC China, mentioned that after supplementing core Tier 1 capital, large banks will have more strength to implement the requirements of serving the real economy and maintaining financial stability, achieving the effect of stimulating economic development, which is a means to counterbalance sheet contraction