New rules to push Bank of China, others into cash calls

HONG KONG (Reuters) - China's banking regulator has urged big state lenders, including Bank of China (601988.SS) (3988.HK), to raise a key measure of financial strength after rapidly expanding lending across the country this year, according to a source with direct knowledge of the matter.

Beijing was pushing for a capital adequacy ratio of 13 percent next year for the big banks, the source said. Ratios at China's top five banks stand at about 11 percent on average, compared with the minimum regulatory requirement of 8 percent for all banks.

Bank of China (601988.SS) (3988.HK), China Construction Bank (601939.SS) (0939.HK) and Bank of Communications (601328.SS) (3328.HK) have notified the regulator that they are working on fundraising proposals to meet the new guideline, said the source.

The China Banking Regulatory Commission (CBRC), did not respond to calls seeking comment.

Bank of China was already in talks with investment banks to raise money, two other sources familiar with the matter said on Monday, in what could be a $15 billion fundraising effort.

The sources were not authorized to speak publicly about the policy or the bank's plans because of the issue's sensitivity.

Bank of China's current capital adequacy ratio is about 11 percent, with at least one analyst saying the ratio would likely fall to 10 percent next year.

"We expect BOC's aggressive loan growth to pull down its total ratio to about 10 percent at the end of 2010, which implies potential fundraising risks under a stricter regulation," said BNP Paribas analyst Dorris Chan in a research note last week.

To meet the 13 percent guideline, Bank of China would have to raise around 100 billion yuan ($14.6 billion), according to sources.

Beijing has repeatedly warned domestic banks of growing risks of over-extending domestic loans and tightened lending policy in recent months.

(Editing by Michael Flaherty and Chris Lewis)

(Additional reporting by Kennix Chim in Hong Kong, Michael Wei and Simon Rabinovitch in Beijing and Samuel Shen in Shanghai)