In-Depth | Exploring a Sustainable Path for Bank Capital Replenishment

21st Century Business Herald Reporters Zhang Xin and Lin Hanyi

At the 2026 National People’s Congress, bank capital replenishment became a hot topic.

On March 5th, Premier Li Qiang stated in the government work report that “a special national bond of 300 billion yuan will be issued to support large state-owned commercial banks in capital replenishment.” This marks the official start of the second round of systematic national capital support, following the initial injection of 500 billion yuan through special bonds into four major state-owned banks in 2025.

In addition to large banks’ capital injections, the replenishment of capital for small and medium-sized financial institutions has also attracted widespread attention. Liu Yajian, a deputy to the National People’s Congress, Secretary of the Party Committee and President of the Beijing Branch of China Export-Import Bank, suggested that “special bonds should be issued to build a long-term mechanism for capital replenishment for small and medium-sized banks.”

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

From direct fiscal injections to exploring ways to leverage large social capital like insurance funds, how to jointly develop a multi-layered, sustainable path for bank capital replenishment has become a key focus for policymakers and markets.

Bank “blood replenishment” (i.e., capital support) generally falls into two categories. One is endogenous capital replenishment, akin to a bank’s “self-hematopoiesis,” mainly relying on retained earnings without external funding. The other is exogenous capital support, akin to “external transfusions,” including targeted issuance, perpetual bonds, Tier 2 capital bonds, special national bond injections, and other external financing methods—important supplements when internal “hematopoiesis” is insufficient.

Against the backdrop of persistently narrowing net interest margins and pressure on profit growth, banks’ ability to “self-hematopoiesis” 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 industry faces widespread challenges of shrinking net interest margins. Data from the China Banking and Insurance Regulatory Commission shows that the net interest margin of commercial banks in Q4 2025 fell to 1.42%. This indicates that banks’ ability to generate internal 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 core Tier 1 capital adequacy ratios for 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 several 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 above 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 have narrower profit margins, greater difficulty in resolving non-performing assets, and more limited tools and channels for capital replenishment. During economic downturns, their risk resistance and endogenous capital accumulation are weaker, making urgent capital support even more critical.

In the face of complex economic cycles and potential risks, maintaining sufficient or even ample capital buffers is crucial. For these banks, capital is not only a basic requirement to meet international regulatory standards but also a key support for stabilizing market confidence, enhancing risk resistance, and consolidating global competitiveness.

In 2025, China completed the first round of capital injection through special bonds, led by the Ministry of Finance, which implemented targeted issuance of 500 billion yuan to CCB, BOC, BOCOM, and Postal Savings Bank. In 2026, the 300 billion yuan special bonds are set to be launched to support capital replenishment for large state-owned banks. The two rounds of injections total 800 billion yuan, forming a systemic support arrangement covering major state-owned banks.

Understanding the policy logic behind the current second round of injections requires a review of the first round in 2025. (See our report “In-depth | Six Major Banks Await ‘Capital Injection’”)

From the end of March 2025, when CCB, BOC, BOCOM, and Postal Savings Bank collectively announced private placements, to mid-to-late June when the 520 billion yuan fundraising was fully completed, the entire process took only about three months. This targeted issuance, with the Ministry of Finance (subscribing 500 billion yuan) as the main issuer, demonstrated 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 our reporter that the deeper significance of the 2025 injections lies in breaking the pricing mechanism. As Industrial Securities pointed out, based on the static calculation of net assets at the end of 2024, the price-to-book ratio (PB) corresponding to the private placement was between 0.67 and 0.76. Although this price was higher than the market price at the time of announcement, resulting in a premium of 8.8% to 21.5%, it broke the long-standing “invisible constraint” that bank equity financing should not be below 1x PB. This pragmatic pricing, higher than market price but significantly below net assets, balanced the preservation of state assets’ value and the protection of existing shareholders’ rights.

Based on the experience of the first round, the upcoming second round of 300 billion yuan special bonds is expected to strictly follow the “one bank, one policy” principle. Market expectations mainly focus on ICBC and ABC as the key recipients.

“State-owned bank capital injections are an important measure to strengthen banks’ capital strength, support the real economy, prevent systemic financial risks, and improve banks’ stable dividend-paying capacity,” said Lin Yingqi, a banking analyst at CICC. He estimates that this 300 billion yuan injection could leverage about 40 trillion yuan in asset expansion, with an average increase of approximately 0.6 percentage points in the core Tier 1 capital adequacy ratios of the two target banks. In scale, 300 billion yuan is roughly equivalent to about 0.7 years of internal profit accumulation for the target banks, or about 2.2 years of total dividends.

During the “Two Sessions,” Li Yunze explicitly proposed researching and exploring the participation of insurance funds in bank capital support, which has attracted strong attention in the insurance and financial markets.

From the micro perspective of the insurance industry, participating in bank capital support is not only a macro response to policy guidance but also an endogenous need 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 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.

Postdoctoral researcher Zhu Junsheng from Peking University’s School of Applied Economics told the 21st Century Business Herald that “bank capital instruments typically have long durations and relatively stable returns, which helps provide long-term assets for insurance funds in a low-interest-rate environment. Moreover, these assets usually offer yields higher than government bonds and policy financial bonds, helping to improve the investment return structure of insurance funds to some extent.”

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

As early as January 2019, the former China Banking and Insurance Regulatory Commission issued the “Notice on Matters Concerning Insurance Funds Investing in Bank Capital Support Bonds,” clarifying that insurance funds could invest in Tier 2 capital bonds and perpetual bonds issued by banks.

In May 2020, the CBIRC further clarified that investments in Tier 2 capital bonds and perpetual bonds should be classified according to the issuer’s categorization of their equity or debt instruments, and managed within relevant regulatory ratios.

Policy dividends have quickly translated into market practice. On the investment side, insurance funds have become an important “ballast” for bank capital bonds. For example, in February 2022, Agricultural Bank issued 50 billion yuan of perpetual bonds, with insurance funds subscribing to 19%, and fund, securities, trust, and other investors accounting for 17%. In February this year, GF Securities published a research report stating that stocks and securities investment funds are the most favored domestic investment assets for insurance institutions in 2026. Among bonds, insurance institutions are more optimistic about high-grade industrial bonds, bank perpetual bonds, Tier 2 capital bonds, and convertible bonds.

Zhu Junsheng noted that perpetual bonds are usually included in banks’ Additional Tier 1 capital, have longer maturities, and are well matched with the long-term liabilities of insurance funds. Their yields are generally higher than ordinary bonds, but they also carry specific risks, such as potential write-downs or conversion triggers in extreme cases. Tier 2 capital bonds are included in banks’ supplementary capital, with lower risk levels than perpetual bonds, and more stable yields, aligning with the conservative investment style of insurance funds.

Additionally, Zhu Junsheng mentioned that insurance funds can also 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 institutions to gather long-term funds for diversified participation.

In 2025, insurance funds increased their holdings of listed company shares over 30 times in the secondary market, reaching a recent high. Bank stocks, especially H-shares with attractive valuations, have become favored targets. Ping An Life, for example, repeatedly increased holdings of Postal Savings Bank, China Merchants Bank, and Agricultural Bank H-shares, exemplifying the evolution from buyer to “strategic shareholder” and indicating that insurance funds are becoming “patient capital” tied to the long-term development interests of banks. (See our report “Intensive Accumulation! Ping An Life’s Major Purchases of Bank H-shares in 2025, with a Preference for Agricultural Bank”)

However, Zhu Junsheng 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 hierarchy, and risk-sharing mechanisms are necessary to enable insurance institutions to accurately assess risk and return.

How to build a long-term, sustainable bank capital support mechanism while relying on rapid “blood transfusions” from fiscal injections?

Zhu Junsheng stated that overall, China’s bank capital support mechanism is shifting from mainly relying on fiscal support to a model where fiscal backing and market forces jointly participate. Under the economic transformation, bank lending still needs continuous support for the real economy, increasing capital consumption. Sole reliance on fiscal funds is not sustainable long-term.

He further explained that historically, bank capital replenishment mainly depended on fiscal injections, retained earnings, and limited capital market financing. In the future, a multi-channel structure combining fiscal support, bank internal accumulation, and market-based financing is expected to form. This shift can effectively disperse the pressure on a single channel, improve the stability of capital sources, and promote normalization and marketization of bank capital replenishment.

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

Li Qian said, “The ‘national team’ focuses on providing a safety net and signaling, especially through special national bonds and other state capital, to address systemic risks, resolve historical burdens, or solidify the capital base of large banks at critical moments. They serve as ‘ballasts’ and convey confidence to the market. Meanwhile, the ‘market army’ emphasizes efficiency and expansion, with market-based funds (such as insurance funds, wealth management funds, etc.) becoming the main force for regular, market-oriented capital replenishment. They focus on returns and risk control, using tools like preferred shares and perpetual bonds to achieve capital support while promoting governance and operational improvements.”

In the long run, involving long-term institutional investors like insurance funds not only expands capital channels but also optimizes bank governance structures. Zhu Junsheng said that with the participation of long-term institutional investors, the diversity of market investors will increase, and the pricing mechanism of bank capital instruments 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.

“The key to achieving effective coordination between pricing mechanisms and risk-sharing lies in market-oriented pricing and clear risk-return sharing,” Li Qian emphasized to our reporter. By clearly defining the risk absorption order and loss boundaries of different types of capital, while ensuring the role of government credit as a cornerstone, social capital can make autonomous decisions based on transparent risk premiums. This will stimulate market participation and realize institutionalized “risk sharing and benefit sharing.”