At the State Council Information Office press conference on October 12, the specific mode of capital injection into the 'Big Six Banks' finally became more certain.

Deputy Minister of the Ministry of Finance Liao Min revealed at a press conference of the State Council Information Office that, following the mindset of overall planning, phased implementation, and "one policy for each bank", actively raising funds through the issuance of special national bonds to support large state-owned commercial banks in further increasing their core tier one capital.

Liao Min stated regarding this work that the Ministry of Finance, together with relevant financial management and regulatory departments, has set up an inter-departmental working group, currently waiting for each bank to submit specific capital replenishment plans.

This result is in line with market expectations.

Previously, regarding the capital injection of the six major banks in this round, the market had speculated on multiple possibilities such as issuing special national bonds and capital injection from central Huijin, among which the discussion on special national bonds was the most intense.

It is worth mentioning that in the previous round of issuing special national bonds for capital injection into state-owned major banks, there was a historical event dating 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 injections under the special national bond model.

Due to the impact of the cycle in 1997, China's economic growth once fell into a difficult period of "internal and external troubles".

On one hand, the economic growth driven by credit for a long time fell into deflation after the tightening of credit, with high debt levels in state-owned enterprises and a large accumulation of inefficient production capacity; on the other hand, the spread of the Asia financial crisis led to export production pressures transmitting to the supply side.

As the former "national specialized bank" 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.

To promote the resolution of financial risks, the Ministry of Finance issued 270 billion yuan of 30-year special national bonds to the four major banks in 1998, with a restricted use for "capital replenishment".

Specifically, the central bank first targeted a reserve requirement cut to release 270 billion yuan to the four major banks. After the four major banks purchased the special national bonds, they would be deposited with the central bank, and the Ministry of Finance would then inject 270 billion yuan into the four major banks.

Compared to the Ministry of Finance publicly issuing government bonds or providing direct capital injections, the four major banks subscribing to the special national bonds can avoid extensive capital withdrawal; although the starting and ending points are both "central bank buying government bonds", they can flexibly bypass the restriction of "People's Bank of China may not directly subscribe to government bonds".

From the perspective of that period, this "firefighting" fund relieved the urgent situation of the four major banks.

There were also market opinions pointing out that with the help of the central bank, the special national bonds were issued by the finance ministry, bought by banks, and self-capitalized by the banks. The enhancement of the banks' ability to resolve losses is limited.

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

However, currently, the capital adequacy ratio of the six major banks is still higher than regulatory requirements and has 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 vice secretary general of China Financial Society Song Fengming said, "The two rounds of capital injection and restructuring in 1998 and 2003 had a profound impact on the large state-owned banks. Currently, the major banks do not have a capital shortage issue. The injection of funds is more for dynamic risk management and resource allocation needs."

Zhou Jin, Managing Partner of PwC China Financial Industry Management Consulting, said that after supplementing core Tier 1 capital, large banks are more capable of implementing the requirements to serve the real economy and maintain financial stability, achieving the effect of stimulating economic development, which is a means to counterbalance sheet contraction.

Editor/ping