Jointly Exploring a Sustainable Path for Bank Capital Replenishment

By the 2026 National Two Sessions, capital replenishment in the banking industry has become a major hot topic.

On March 5th, the government work report explicitly proposed, “Plan to issue 300 billion yuan of special treasury bonds to support state-owned large commercial banks in capital augmentation.” This marks the official start of the second round of systemic national capital replenishment plans, following the initial injection of 500 billion yuan of special treasury bonds into four state-owned major banks in 2025.

In addition to capital injections into large banks, the replenishment of capital for small and medium-sized financial institutions has also garnered widespread attention. Liu Yajian, Party Secretary and President of the Beijing Branch of China Export-Import Bank and a National People’s Congress delegate, suggested “issuing special bonds to establish a long-term mechanism for capital replenishment for small and medium-sized banks.”

The policy perspective does not stop there. On March 6th, Li Yunze, Party Secretary and Director of the China Banking and Insurance Regulatory Commission, responded to a reporter from 21st Century Business Herald, highlighting another key dimension of bank capital replenishment: “In addition to the central government issuing special treasury bonds, more social funds can be mobilized through market-based approaches, such as exploring insurance funds and other sources.”

From direct fiscal injections by the central government to exploring mobilization of vast social capital represented by insurance funds, how to jointly develop a multi-layered, sustainable path for bank capital replenishment has become a key issue for decision-makers and markets alike.

Urgent Need for Bank “Blood Transfusion”

Bank “blood replenishment” (i.e., capital augmentation) generally falls into two categories. One is endogenous capital replenishment, akin to banks “self-generating blood,” mainly relying on retained earnings without external funding. The other is external capital replenishment, akin to “external transfusion,” including targeted share issuance, perpetual bonds, Tier 2 capital bonds, special treasury bond injections, and other external financing methods—important supplements when internal “blood production” is insufficient.

Amid persistently narrowing net interest margins and pressure on profit growth, banks’ self-generation capacity is declining. Relying solely on internal “blood replenishment” can no longer meet capital consumption needs, making external “transfusions” a common industry choice.

Currently, China’s banking sector faces widespread challenges of shrinking net interest margins. According to the China Banking and Insurance Regulatory Commission, the net interest margin of commercial banks in Q4 2025 fell to 1.42%. This indicates that banks’ ability to internally generate capital through profits is weakening.

For globally systemically important banks (G-SIBs) represented by large state-owned banks, capital pressure stems not only from operations but also from strict international regulatory standards. According to the Financial Stability Board (FSB), the minimum regulatory requirements for the core Tier 1 capital adequacy ratios of ICBC, ABC, BOC, CCB, and BOCOM are 9.5% (note: ICBC’s requirement increased to 9.5% after being upgraded to G-SIBs third group in November 2025), 9.0%, 9.0%, 9.0%, and 8.5%, respectively.

However, amid the ongoing narrowing of net interest margins and profit growth pressures, the capital adequacy levels of many large banks have fluctuated. As of the end of Q3 2025, ICBC, ABC, BOC, CCB, and BOCOM had core Tier 1 capital adequacy ratios of 13.57%, 11.16%, 12.58%, 14.36%, and 11.37%, respectively, all meeting regulatory minimums. Compared to the end of 2024, ICBC decreased by 0.53 percentage points, ABC by 0.26 points, BOC increased by 0.38 points, CCB decreased by 0.12 points, and BOCOM increased by 1.13 points.

Meanwhile, numerous small and medium-sized banks face even more direct and severe capital pressures. Compared to large banks, these smaller banks generally encounter narrower profit margins, greater pressure to resolve non-performing assets, and more limited tools and channels for capital replenishment.

Accumulated 800 Billion Yuan Fiscal Injection to “Transfuse” State-Owned Major Banks

Understanding the logic behind the current second round of injections requires a review of the first round in 2025.

Starting from late March 2025, four major state-owned banks—CCB, BOC, ICBC, and Postal Savings Bank—collectively announced private placements. By mid to late June, the 520 billion yuan fundraising was fully completed in about three months. This targeted issuance was led by the Ministry of Finance (which subscribed 500 billion yuan), reflecting strong government-led support. According to a report by Industrial Securities, this round of injections directly increased the core Tier 1 capital adequacy ratios of the four banks by 0.48 to 1.51 percentage points.

A senior analyst told this reporter that the deeper significance of the 2025 injections lies in breaking through the pricing mechanism. As the report from Industrial Securities noted, based on the static calculation of net assets at the end of 2024, the issuance price corresponded to a price-to-book ratio (PB) between 0.67 and 0.76. Although this price was higher than the market price at the time of announcement, it resulted in a premium of 8.8% to 21.5%, breaking the long-standing “implicit constraint” that bank equity financing should not be below 1x PB. This pragmatic pricing—higher than market price but significantly below net assets—struck a balance between preserving state assets’ value and protecting existing shareholders’ rights.

Based on this experience, the upcoming second round of 300 billion yuan of special treasury bond injections is expected to strictly follow the “one bank, one policy” principle. Market consensus suggests ICBC and ABC will be the focus of this round.

Insurance Funds of 38 Trillion Yuan May Participate in Bank “Blood Replenishment”?

During the National Two Sessions, Li Yunze explicitly proposed exploring insurance funds’ participation in bank capital replenishment, which has sparked strong attention in the insurance and financial markets.

From a micro perspective of the insurance industry, participating in bank capital tools is not only a macro response to policy guidance but also an endogenous demand in the current low-interest-rate environment to address “asset shortages” and optimize asset-liability matching.

Data from the China Banking and Insurance Regulatory Commission shows that by the end of 2025, the utilization balance of insurance funds had exceeded 38 trillion yuan. As long-term interest rates decline, insurance funds face severe “reinvestment risks” and downward pressure on yields in fixed-income asset allocations.

朱俊生, a postdoctoral researcher in applied economics at Peking University, told 21st Century Business Herald that bank capital instruments typically have longer durations and relatively stable yields, which can help insurance funds allocate long-term assets in a low-interest-rate environment. These assets generally offer yields higher than government bonds and policy financial bonds, helping to improve the investment return structure of insurance funds.

In fact, the capital linkages between banking and insurance sectors have formed a multi-layered cooperation pattern after years of policy relaxation.

On the investment side, insurance funds have become an important “ballast” for bank capital bonds. For example, in February 2022, ABC issued 50 billion yuan of perpetual bonds, with insurance funds subscribing to 19%, and funds, securities firms, trusts, and other investors accounting for 17%. In February this year, GF Securities published a research report stating that stocks and securities investment funds are generally favored domestic investment assets for insurance institutions in 2026. Regarding bonds, insurance institutions are more optimistic about high-grade industrial bonds, bank perpetual bonds, Tier 2 capital bonds, and convertible bonds.

朱俊生 explained that perpetual bonds are usually counted as additional Tier 1 capital for banks, have long maturities, and match the long-term liabilities characteristic of insurance funds. Their yields are generally higher than ordinary bonds. Additionally, insurance funds can directly enhance banks’ core Tier 1 capital through targeted capital increases or equity investments. In the future, they may also initiate specialized asset management products or investment funds through insurance asset management companies, pooling long-term funds for diversified participation.

However, he also cautioned that bank capital instruments often include write-down, conversion, or trigger clauses, with risk features different from ordinary bonds. Clear conditions for triggers, capital ranking, and risk-bearing mechanisms are necessary so that insurance institutions can accurately assess risk and return.

“National Team” and “Market Team” Collaborate and Advance

How to build a long-term, sustainable bank capital replenishment mechanism while relying on fiscal injections for quick “blood transfusions”?

朱俊生 further pointed out that historically, bank capital replenishment has heavily depended on fiscal injections, retained earnings, and limited market financing. In the future, a multi-channel structure combining government support, internal bank accumulation, and market-based financing is likely to form. This shift can effectively disperse the pressure on any single channel, enhance the stability of capital sources, and promote normalization and high-marketization of bank capital replenishment.

Regarding the specific path of collaboration between the “national team” and the “market team,” Li Qian, Director of the Financial Business Department at Dongxing Securities, shared her views with 21st Century Business Herald. She believes that in the future bank capital replenishment system, the “national team” and the “market team” should form a “complementary, layered” collaborative pattern.

Li Qian said, “The ‘national team’ focuses on bottom-line support and signaling. Special treasury bonds and other national capital should concentrate on addressing systemic risks, resolving historical burdens, or solidifying the capital base of large banks during critical moments, serving as ‘ballast’ and confidence signals to the market.” Meanwhile, the “market team” emphasizes efficiency and expansion. Market-based funds (such as insurance funds, wealth management funds, etc.) should become the main force of regularized, market-oriented capital replenishment. They focus on returns and risk control, using tools like preferred shares and perpetual bonds to achieve capital augmentation while promoting bank governance and operational efficiency.

In the long run, involving long-term institutional investors like insurance funds not only expands capital channels but also optimizes bank governance structures.朱俊生 noted that with the participation of long-term institutional investors and the continuous enrichment of market investor structures, the pricing mechanism of bank capital tools will become more market-oriented. This will push commercial banks to improve standards in corporate governance, information disclosure, and risk management, thereby promoting the standardized development of bank capital markets.

“Achieving effective coordination between pricing mechanisms and risk-sharing depends on market-oriented pricing and clear risk-return sharing,” Li Qian emphasized. By clearly defining the risk absorption order and loss boundaries of different types of capital, ensuring that social capital can make autonomous decisions based on transparent risk premiums, and maintaining the cornerstone role of government credit, the system can motivate market participation and realize “shared risk and shared benefits” through institutional collaboration.