Goldman Sachs expect Chinese banks to undergo capital restructuring with RMB500bn in bonds

The Chinese government has announced the issuance of RMB500 billion in special treasury bonds to support the capital replenishment of large state-owned commercial banks, exceeding Goldman Sachs’ previous estimate of RMB240 billion but falling short of the RMB1 trillion expected by the market. Goldman Sachs noted that additional bond issuances remain a possibility, particularly if credit growth accelerates and further strains banks’ capital reserves.

The investment bank expects the capital restructuring to occur in phases, with banks in greater need of capital—such as Postal Savings Bank of China (PSBC), Bank of Communications (BANKCOMM), Bank of China (BOC), and Agricultural Bank of China (ABC)—being included in the RMB500 billion plan. However, Goldman Sachs anticipates that the impact on earnings per share (EPS) and dividend yields for these institutions will be minimal.

Additionally, if the recapitalization of large banks is conducted below 1x price-to-book (P/B) ratio, it could create fundraising opportunities for smaller and mid-sized banks. As a result, Goldman Sachs expects more small and mid-sized banks to seek refinancing in the second half of 2025 (2H25). Among the beneficiaries of this capital injection, Bank of China (BOC) is Goldman Sachs’ top pick within the Chinese banking sector.

This article was written by Eamonn Sheridan at www.forexlive.com.