Over 80 small and medium-sized banks will intensively raise capital within the year, with local state-owned assets playing a leading role in the capital replenishment wave.

Everyday Economic News Reporter | Liu Jukai Everyday Economic News Editor | Wendu

Starting in 2026, China’s banking industry has launched a wave of intensive capital replenishment. According to statistics from the “Daily Economic News,” by early March, more than 80 city commercial banks, rural commercial banks, and other small and medium-sized banks across the country had completed registered capital changes, most of which involved capital increases.

Unlike previous rounds, this wave of capital increases is characterized by a prominent role of local state-owned capital. Local state-owned assets are participating in the “refueling” of small and medium-sized banks with unprecedented depth and breadth. Behind this is the reality that the capital adequacy ratios of many small and medium-sized banks are generally below industry averages, with non-performing loan ratios significantly higher than the average, along with regulatory efforts to resolve risks and guide banks to serve regional real economy considerations.

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Capital pressure drives: from “individual cases” to “surging waves” of capital increases

The latest data from the National Financial Regulatory Administration shows that by the end of Q4 2025, the average capital adequacy ratios of city commercial banks and rural commercial banks in China were 12.39% and 13.18%, respectively. Meanwhile, their non-performing loan ratios were 1.82% and 2.72%. Some banks’ core Tier 1 capital adequacy ratios are approaching the regulatory red line of 7.5%, making capital replenishment increasingly urgent.

Against this backdrop, since 2026, the capital increase activities of small and medium-sized banks have shown a “wholesale” implementation pattern. In just three days from January 4 to 6, over 30 banks received regulatory approval for their capital increase plans, covering provinces such as Guangxi, Hebei, and Sichuan. The Shangrao branch of the National Financial Regulatory Administration also approved nearly 10 rural commercial banks’ capital increase plans on January 6 alone.

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A senior banking industry researcher analyzed in March that this regional and centralized approval rhythm clearly signals the regulatory authorities’ urgent intent to push small and medium-sized banks to meet capital standards and prevent regional financial risks. Capital increases are not only to meet regulatory rigid requirements and avoid business development restrictions but also essential for maintaining credit delivery capacity and supporting local real economy.

Looking at specific cases, the need for capital replenishment is urgent. On March 7, Chengdu Bank announced approval to increase its registered capital from 3.736 billion yuan to 4.238 billion yuan, mainly due to early redemption of convertible bonds to optimize capital structure. Earlier, in early February, Hubei Bank completed an issuance of 1.8 billion shares, raising 7.614 billion yuan, bringing total share capital to 9.412 billion shares. After the increase, the bank’s core Tier 1 capital adequacy ratio rose from 7.94% at the end of 2024 to 8.96% at the end of 2025, and the overall capital adequacy ratio increased to 12.62%, effectively enhancing risk resistance.

Guangzhou Bank is also actively preparing for capital expansion, with its core Tier 1 capital adequacy ratio dropping to 7.73% at the end of Q3 2025, just 0.23 percentage points below the regulatory red line, making capital replenishment particularly urgent.

Deep dominance of state-owned capital: from “financial transfusion” to “strategic synergy” in equity restructuring

The most notable feature of this wave of capital increases is the deep and broad participation of local state-owned capital, which has gone beyond mere financial investors. A typical example is Hubei Bank’s targeted issuance: among its 53 corporate shareholders, 35 are new state-owned legal entities, with state capital subscribing to over 96%. This is expected to further increase the proportion of state-owned shares from 81.21% to over 84%. These new shareholders come from 15 cities and prefectures within Hubei Province, forming a provincial network of state-owned shareholders.

After approval of its capital increase plan, Ya’an City Commercial Bank will see four state-owned shareholders, including the Ya’an Economic and Technological Development Zone Financial and Banking Bureau, officially join, boosting total share capital by over 73% and increasing the proportion of state-owned shares accordingly.

In Qinghai Bank’s capital increase, shareholders such as Western Mining Group and Qinghai Transportation Holding Group, both provincial state-owned enterprises, have been officially approved. Shanxi Bank was solely capitalized by the Shanxi Provincial Finance Department, with registered capital changing from 25.894 billion yuan to 27.309 billion yuan.

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The senior banking researcher explained that the large-scale, high-proportion participation of local state-owned capital in capital increases creates strategic partnerships far beyond ordinary financial investment. This not only provides strong credit endorsement and helps reduce financing costs but also means that in future projects related to local government, major infrastructure financing, and other areas, these banks may gain more direct and stable business channels and resource support.

He believes this deepens the strategic positioning of small and medium-sized banks to “root in the local area and serve regional development” at the equity level, strengthening their collaborative relationships with local governments at all levels, and laying a unique resource foundation for future business growth. However, this also raises higher requirements for the banks’ independent legal status and market-oriented management capabilities.

Regulatory promotion and long-term challenges: replenishing is easy, building internal capacity is hard

Regulatory authorities’ proactive promotion has been a key driver of this wave of capital increases. Besides concentrated approvals, policy guidance has also been clear. The 2026 government work report proposed “multi-channel efforts to increase capital replenishment, and prudent disposal of financial institutions’ non-performing assets,” along with plans to issue 300 billion yuan in special national bonds to support large state-owned commercial banks’ capital augmentation.

Li Yunze, director of the National Financial Regulatory Administration, recently stated that besides the central government issuing special bonds, market-based approaches could also be used to mobilize more social funds—“such as exploring insurance funds.”

However, completing capital increases is only the starting point for risk resolution and development. The aforementioned researcher warned that capital replenishment only addresses immediate constraints; how to convert capital strength into sustainable endogenous “self-sustaining” capacity and market competitiveness is the real long-term challenge. Using Hubei Bank as an example, he noted the bank’s strategic goal of surpassing 1 trillion yuan in assets by 2027, which requires maintaining an average annual growth rate of about 20% over the next two years, putting continuous pressure on capital consumption.

Moreover, industry-wide challenges remain. In the context of narrowing net interest margins, the overall profitability of banks is squeezed, and endogenous capital replenishment through profits is weakening. Some small and medium-sized banks also face multiple pressures, such as transforming wealth management businesses and competing with large banks’ business expansion. While state-owned equity participation improves shareholding structures and corporate governance, whether it can effectively activate operational efficiency and market vitality, avoiding cycles of “shareholder control” and “dependence on transfusions,” remains to be seen.

As the “Commercial Bank Capital Management Measures” are fully implemented, changes in capital measurement methods may increase risk-weighted assets for some small and medium-sized banks, creating new capital gaps. Capital replenishment for these banks will become normalized and institutionalized. In the short term, deep involvement of local state-owned capital injects valuable capital liquidity, stabilizing market confidence.