China's Bold Move: 1 Trillion Yuan Injection to Revitalize State Banks

China is planning to inject up to 1 trillion yuan into its major state banks to bolster the struggling economy. This initiative is part of a wider set of stimulus measures and will be funded through new special sovereign bonds. Top lenders face shrinking margins, declining profits, and rising bad loans.

China is gearing up for a significant economic intervention by injecting up to 1 trillion yuan ($142.39 billion) into its largest state banks, as reported by Bloomberg News on Wednesday.

This substantial infusion of capital is a component of broader stimulus measures introduced by Beijing this week, aimed at invigorating the nation's faltering economy and sluggish markets. According to Bloomberg, the funds will primarily be sourced from the issuance of new special sovereign bonds, citing individuals familiar with the situation.

The National Financial Regulatory Administration (NFRA), the regulatory authority overseeing the banking sector, did not provide immediate comments when contacted by Reuters. The country's top lenders have been grappling with smaller profit margins, decreased earnings, and escalating bad loans amid a slowing growth trajectory and an unprecedented crisis in the property sector.

Four out of China's five largest banking institutions reported a decline in second-quarter profits after adhering to a government directive to reduce lending rates to stimulate weak loan demand. The proposed capital injection, still subject to adjustments, marks the first substantial intervention by the Chinese government in its banking sector since the 2008 global financial crisis, as Bloomberg noted.

In a positive market response, China's CSI300 blue-chip index bounced back from early losses to trade 0.35% higher, while Hong Kong's Hang Seng Index saw a rise of 1.5%. Additionally, the yuan strengthened, last recorded at 7.0241 in the onshore market.

(With inputs from agencies.)