China Merchants Bank raises rights issue target

SHANGHAI Aug 31 (Reuters) - China Merchants Bank Co (3968.HK) (600036.SS), the country's sixth-largest lender, raised its maximum fund-raising target for a planned rights issue by 22 percent, due to a likely tightening of banks' capital adequacy rules.

China Merchants Bank now plans to raise 18 billion to 22 billion yuan ($2.6-3.2 billion) via the rights issue in Hong Kong and Shanghai, compared with the original target of 15 billion to 18 billion yuan announced on Aug. 13, the lender said in a statement to the Shanghai Stock Exchange on Saturday.

The company will offer up to 2.5 shares for each 10 existing shares, compared with a previous plan to offer 2 shares for every 10 shares.

China's banking regulator issued draft rules this month that would bar banks from using subordinated and hybrid bonds sold to other lenders as part of their capital base, as the government reins in rapid lending growth amid fears that the surge could fuel asset bubbles and cause a sharp increase in bad loans.

Chinese banks have issued around 200 billion yuan in subordinated bonds so far this year, more than double the amount issued last year, helping to support a jump in new lending in the first six months of the year to a record 7.37 trillion yuan.

Banks must either restrict lending or increase capital to meet stricter rules on capital adequacy, which measures a lender's ability to absorb potential losses.

China Merchants Bank's capital adequacy ratio fell to 10.63 percent as of June 30 from 11.34 percent at the end of 2008, falling short of a 12 percent minimum set by regulators.

The lender's first-half net profit attributable to shareholders dropped 38.3 percent from a year earlier to 8.26 billion yuan, hurt by shrinking interest margins and rising bad loan reserves. ($1=6.830 Yuan) (Reporting by Samuel Shen and Edmund Klamann)