85 Small and Medium-Sized Banks Intensify Capital Increases, State-Owned Capital Takes the Lead, Convertible Bonds Emerge as New Option

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 21st Century Business Herald, by mid-March, at least 85 city commercial banks and rural commercial banks nationwide had completed changes in registered capital, with a clear acceleration in the pace of capital increases and share expansions.

Against the backdrop of pressure on capital adequacy ratios and rising non-performing loan rates, the concentrated “capital infusion” 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 in capital increases; local state-owned capital deeply participating; and new breakthroughs in market-based tools.

However, completing capital replenishment is only the starting point. How to transform external “blood transfusions” into endogenous “blood production” capacity and build a sustainable long-term mechanism for capital replenishment has become the core issue for the reform and risk mitigation of small and medium-sized banks in 2026. 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.

Reasons for intensive capital increases under three factors

According to incomplete statistics by 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 changes in registered capital, mostly through 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 the capital increases. Specifically, since March alone, five banks such as Jiashan Rural Commercial Bank and Yutai Rural Commercial Bank have been approved for capital increases. In terms of amount, large-scale increases of hundreds of millions of yuan are relatively rare; most are small increases in the tens of millions or millions of yuan. For example, Shandong Jiashan Rural Commercial Bank, approved on March 16, increased its registered capital from 600 million yuan to 618 million yuan, an increase of 180 million yuan. Geographically, the current round of capital increases mainly focus on Shandong, Hebei, Qinghai, and other regions.

Meanwhile, the capital increases and share expansions of many city commercial banks are also ongoing. Xinjiang Bank (43.2 billion yuan), Qinghai Bank (6.5 billion yuan), Shanxi Bank (14.2 billion yuan), and others have been approved for changes in registered capital.

Industry insiders analyze that the current wave of concentrated capital increases among small and medium-sized banks is not accidental but the result of multiple factors working 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, regulators are continuously raising requirements for capital adequacy ratios, and some small and medium-sized banks face 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 supplement core Tier 1 capital.

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

This urgent capital increase demand is also supported by industry data. According to the State Financial Regulatory Administration’s data at the end of Q4 2025, 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, the non-performing loan ratios of city commercial banks and rural commercial banks reached 1.82% and 2.72%, respectively, higher than the industry average of 1.5%. The urgency and necessity of capital replenishment are evident.

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

Market-based tools achieve new breakthroughs

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

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

An industry expert focusing on banking said 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 banks to deepen regional roots and serve local real economy.

Alongside state-owned dominance, the innovative application of market-based tools has also become a highlight of this round 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 notable advantages in capital efficiency and cost control:

1. The issuance pace is more flexible, with a relatively gentle impact on the secondary market, and dilution effects are gradually released.

2. During the period before conversion, 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 strategic conversion timing. 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. Facing industry pain points such as insufficient endogenous replenishment capacity and narrow external channels, how to transform capital strength into endogenous “blood production” capacity and establish a sustainable long-term mechanism for capital replenishment has become the core issue for 2026 and future development. Multi-party coordination involving regulators, policies, and industry transformation is key to solving these problems.

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 capital replenishment difficulties of small and medium-sized banks have long existed. Internally, limited by regional economic development and operational capabilities, their profitability is generally low, and profit retention is limited; 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 have also provided clear guidance for its implementation.

The 2026 government work report explicitly proposed “multi-channel efforts to increase capital replenishment and prudent disposal of financial institutions’ non-performing assets,” and planned to issue 300 billion yuan in special national bonds to support large state-owned commercial banks’ capital supplementation. Li Yunze, director of the National Financial Regulatory Administration, also stated that besides central government issuance of special bonds, more social funds could be mobilized through market-based means, including insurance funds and other long-term capital.

During the Two Sessions, many representatives and committee members focused on the capital replenishment of small and medium-sized banks, suggesting multi-party collaboration to establish a long-term 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 commercial banks and rural commercial banks are nearing the regulatory red line for core Tier 1 capital adequacy ratios. They urgently need to issue special bonds to support capital replenishment. Allowing local governments to issue special bonds to supplement small and medium-sized banks’ capital is of great significance for alleviating capital shortages and promoting steady development of small and medium-sized banks, which will also help local small and medium-sized financial institutions develop healthily.”

There are already mature practices of local government special bonds supporting small and medium-sized banks. 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 consolidating capital strength through endogenous growth, thus achieving synchronized development with the local economy.