85 Small and Medium-Sized Banks Intensify Capital Increases; State-Owned Capital Leads, Convertible Bonds Emerge as New Option

What are the deep driving forces behind the intensive capital increases among small and medium-sized banks?

21st Century Business Herald Reporter Guo Congcong

Since the beginning of 2026, China’s banking industry has entered a new round of intensive capital replenishment, with small and medium-sized banks becoming the main force in this wave of capital increases. According to incomplete statistics by the 21st Century Business Herald, by mid-March, at least 85 city commercial banks and rural commercial banks nationwide had completed registered capital changes, with the pace of capital increases and share expansions clearly accelerating.

Against the backdrop of pressure on capital adequacy ratios and rising non-performing loan rates, the concentrated “blood replenishment” by small and medium-sized banks is not only a necessary response to regulatory requirements and asset expansion needs but also reflects deeper considerations of resolving regional financial risks and serving the real economy. Compared to previous years, this round of capital increases shows three main features: rural and village banks taking the lead; deep participation by local state-owned capital; and new breakthroughs in market-based tools.

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However, completing capital replenishment is only the starting point. How to transform external “blood transfusions” into endogenous “blood-making” capacity and build a sustainable long-term mechanism for capital replenishment has become the core issue in the 2026 reform and risk mitigation of small and medium-sized banks. During the two sessions, many representatives and committee members suggested establishing a long-term capital replenishment mechanism through multi-party coordination to ensure that capital is truly used to serve the real economy.

The triple reasons behind intensive capital increases

According to incomplete statistics by the 21st Century Business Herald, by mid-March 2026, more than 85 small and medium-sized banks, including city commercial banks and rural commercial banks, had completed registered capital changes, most of which involved net capital increases. A new wave of capital replenishment for small and medium-sized banks is ongoing.

In terms of institution types, since 2026, rural and village banks have become the main force behind this round of capital increases. Specifically, just since March, five banks such as Jiashan Rural Commercial Bank and Yutai Rural Commercial Bank have been approved for capital increases. In terms of amounts, large-scale increases of hundreds of millions of yuan are relatively rare; most are small increases in the tens of millions or hundreds of thousands of yuan. For example, the Shandong Jiashan Rural Commercial Bank, approved on March 16, increased its registered capital from 600 million yuan to 618 million yuan, an increase of 18 million yuan. Geographically, the main areas of these capital increases are concentrated in Shandong, Hebei, Qinghai, and other regions.

Meanwhile, the capital increases and share expansions of many city commercial banks are also ongoing. For example, Xinjiang Bank (with a capital increase of 4.32 billion yuan), Qinghai Bank (6.5 billion yuan), and Shanxi Bank (14.2 billion yuan) have all been approved for registered capital changes.

Industry insiders analyze that this round of intensive capital increases among small and medium-sized banks is not accidental but the result of multiple factors acting together.

Luo Feipeng, researcher at China Postal Savings Bank, said that this wave of capital increases mainly aims to meet regulatory standards and cope with the dual pressures of asset expansion. On one hand, regulatory requirements for capital adequacy ratios are continuously rising, putting some small and medium-sized banks under pressure to meet standards; on the other hand, the growth in credit demand accelerates capital consumption, making capital increases and share expansions the most direct and effective way to replenish core Tier 1 capital.

Lin Yingqi, director of the research department at China International Capital Corporation and a banking industry analyst, also stated that the new round of concentrated capital increases and share expansions among small and medium-sized banks in 2026 is essentially the result of tighter capital constraints, expanded credit issuance, and rising risk resistance needs.

This urgent capital increase demand can also be confirmed by industry data. According to the fourth-quarter 2025 data from the China Banking and Insurance Regulatory Commission, the capital adequacy ratios of city commercial banks and rural commercial banks were 12.39% and 13.18%, respectively, below the industry average of 15.46%. Meanwhile, their non-performing loan ratios reached 1.82% and 2.72%, higher than the industry average of 1.5%, making capital replenishment both urgent and necessary.

Lin Yingqi pointed out that compared to previous years, this round of capital increases shows more distinct new features. “First, the participating entities are broader, with county-level rural commercial banks and village banks becoming important new contributors. Second, the involvement of local state-owned assets, fiscal authorities, and high-quality enterprises in capital injections is more common, significantly improving the stability of the increases. Third, the methods are more diverse, including targeted share issuance and convertible bonds for capital supplementation.”

Breakthroughs in market-based tools

This wave of capital increases has two main features: first, the more widespread involvement of local state-owned capital, fiscal authorities, and high-quality enterprises, significantly enhancing stability; second, the flexible application of market-based tools such as convertible bonds.

Local state-owned capital has become the dominant force in this round of capital increases. For example, in the case of Hubei Bank’s 1.8 billion share private placement, among 53 corporate shareholders, 35 new state-owned corporate shareholders participated, with over 96% of the new shares subscribed by local state-owned enterprises, covering 15 cities and states within Hubei Province, increasing the state-owned shareholding ratio from 81.21% to over 84%. Yaan Commercial Bank also introduced four state-owned shareholders, resulting in a total share increase of over 73%, with the proportion of state-owned shares rising accordingly. Qinghai Bank welcomed participation from provincial state-owned enterprises such as Western Mining Group and Qinghai Transportation Holding Group. Shanxi Bank received exclusive capital injection from the Shanxi Provincial Finance Department, increasing its registered capital from 25.89 billion yuan to 27.31 billion yuan.

An industry expert noted that the large-scale entry of local state-owned capital not only supplements the capital of small and medium-sized banks but also helps improve shareholding structures and corporate governance, laying a solid foundation for these banks to deepen roots in their regions and serve local real economy.

Alongside state-owned capital, the innovative use of market-based tools has also become a highlight of this wave of capital increases.

Chengdu Bank recently announced approval to increase its registered capital from 3.736 billion yuan to 4.238 billion yuan, a 13.46% increase, effectively improving its core Tier 1 capital adequacy ratio. This increase was mainly achieved through early redemption and conversion of previously issued convertible bonds, making it the first bank in 2026 to expand capital via convertible bond conversion.

Lin Yingqi analyzed that, compared to rights issues and share placements, convertible bonds have advantages in efficiency and cost control:

1. They offer more flexible issuance timing, with a relatively gentle impact on the secondary market, gradually releasing dilution effects.

2. During the non-conversion period, the coupon rate is relatively low, helping to control financial costs.

3. The approval and issuance mechanisms are more mature, allowing for pre-planning and opportunistic conversion. While convertible bonds may not fully replace rights issues and share placements in the future, they will become a normalized tool for capital replenishment, complementing other methods and enhancing the market-oriented level of bank capital increases.

Lin Yingqi said, “Convertible bonds are gradually becoming an important option for listed banks to supplement core Tier 1 capital, especially suitable for small and medium-sized listed banks.”

Building a long-term mechanism as a core issue

Completing capital replenishment is only the beginning for small and medium-sized banks to resolve risks and seek development. Given the industry’s shortcomings in endogenous capital generation and narrow external channels, how to turn capital strength into endogenous “blood-making” capacity and establish a sustainable long-term mechanism for capital replenishment has become the core task for 2026 and beyond. Regulatory guidance, policy support, and multi-party industry cooperation are key to solving these challenges.

Industry insiders pointed out that capital replenishment only addresses the current capital constraints of small and medium-sized banks; without sustainable endogenous growth, they will still face capital consumption pressures in the future.

Compared to large state-owned banks, the problem of capital replenishment for small and medium-sized banks has long existed. Internally, limited profitability due to regional economic development levels and operational capabilities restrict profit retention; externally, weak brand influence and low investor recognition make it difficult to attract social capital, resulting in persistent capital pressure.

Against this background, establishing a long-term mechanism for capital replenishment has become a consensus in the industry. Policy support from regulators and suggestions from representatives and committee members provide clear directions for implementation.

The 2026 government work report explicitly proposed “multi-channel efforts to increase capital replenishment and prudent disposal of financial institution non-performing assets,” and planned to issue 300 billion yuan in special national bonds to support large state-owned commercial banks’ capital needs. Li Yunze, director of the China Banking and Insurance Regulatory Commission, also stated that besides central government issuance of special bonds, market-based approaches could be used to mobilize more social funds for bank capital replenishment, including long-term funds like insurance capital.

During the two sessions, many representatives and committee members focused on the capital needs of small and medium-sized banks, suggesting multi-party cooperation to establish a long-term capital replenishment mechanism to ensure that capital is genuinely used to serve the real economy.

Liu Ya, a National People’s Congress deputy and president of the Beijing branch of China Export-Import Bank, said: “Some city and rural commercial banks’ core Tier 1 capital adequacy ratios are approaching regulatory red lines. There is an urgent need for small and medium-sized banks to issue special bonds to support capital replenishment. Allowing local governments to issue special bonds to supplement bank capital is significant for alleviating capital shortages and promoting steady development of small and medium-sized banks, which is conducive to the healthy growth of local small and medium financial institutions.”

There are already mature practices of local government special bonds supporting small and medium-sized banks. For example, in July 2025, Jilin Province issued 26 billion yuan in special bonds to support small and medium-sized banks, with funds transferred from the provincial finance department to Jilin Financial Holdings, which then indirectly invested in Jilin Rural Commercial Bank, directly improving its capital adequacy and risk resistance, serving as a vivid example of how special bonds support reform and risk mitigation.

An industry insider admitted that for small and medium-sized banks, capital replenishment is only the first step. The key future task is to actively realize a virtuous cycle of “capital replenishment—serving the real economy—profit growth—capital accumulation,” transforming replenished capital into the ability to serve the real economy, and continuously strengthening internal growth to achieve synchronized development with the local economy.