85 Mid-sized and Small Banks Intensify Capital Increases; State-Owned Capital Takes the Lead, Convertible Bonds Become New Option

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 from 21st Century Business Herald, by mid-March, at least 85 city commercial banks and rural commercial banks across the country 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 intensive “replenishment” of 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 expansion; 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-making” 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 collaboration to ensure that capital is truly used to serve the real economy.

Source of the image: Photo by our reporter Liang Yuanhao

Intensive Capital Increases Driven by Triple Factors

According to incomplete statistics from 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 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 small and medium-sized banks involved are mainly 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 wave of intensive 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, stated 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 capital adequacy requirements, 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 analyst, also said 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 deployment, and rising risk resistance needs.

This urgent capital increase demand is also supported 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, the non-performing loan rates 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 exhibits more distinct new features: “First, the participants are broader, with county-level rural commercial banks and village banks becoming important new contributors. Second, the involvement of local state-owned assets, fiscal funds, and high-quality enterprises in coordinated capital injections is more common, 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 dominant 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 shareholders, with over 96% of the newly issued shares subscribed by local state-owned enterprises, covering 15 cities and prefectures within Hubei Province. This increased the bank’s state-owned shareholding from 81.21% to over 84%. Similarly, Ya’an Commercial Bank introduced four state-owned shareholders, resulting in over a 73% increase in total share capital and a corresponding rise in state-owned shares. Qinghai Bank welcomed participation from Western Mining Group and Qinghai Provincial Transportation Holding Group, both provincial state-owned enterprises. 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 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 these banks to root in regions and serve local real economy.

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

Chengdu Bank recently announced that it had been approved 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 capital 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 private placements, convertible bonds have advantages in efficiency and cost control:

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

2. During the non-conversion period, coupon rates are relatively low, helping control financial costs.

3. The approval and issuance mechanisms are more mature, allowing for proactive planning and opportunistic conversion. While convertible bonds are unlikely to fully replace rights issues and private placements, they will become a normalized tool for capital supplementation, complementing other methods and enhancing the market-oriented level of bank capital replenishment.

Lin Yingqi stated, “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 Task

Completing capital replenishment is only the beginning for small and medium-sized banks to resolve risks and seek development. Given the industry’s challenges of insufficient endogenous replenishment capacity and narrow external channels, how to transform capital strength into endogenous “blood-making” ability 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 continue to face capital consumption pressures.

Compared to large state-owned banks, the capital replenishment difficulties of small and medium-sized banks have 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 pressure on capital replenishment.

In this context, 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 clarified the direction for 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 in capital supplementation. 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 mobilize more social funds to participate in bank capital replenishment, including long-term funds such as insurance capital.

During the two sessions, many representatives and committee members focused on capital replenishment for 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 deputy to the National People’s Congress 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. Small and medium-sized banks urgently need 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. In July 2025, Jilin Province issued 26 billion yuan in special bonds to support small and medium-sized banks. The funds were allocated by the provincial finance department to Jilin Financial Holdings Group, 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 of small and medium-sized banks.

The industry expert mentioned earlier 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,” so that the replenished capital can truly enhance the ability to serve the real economy, while internal growth continuously consolidates capital strength, achieving synchronized development with the local economy.