Industrial Bank Co, China's 12th largest lender, approved plans to sell stock to its shareholders and bonds to financial institutions to raise capital after a change in government policy delayed its initial public offering.

The lender, in which Hong Kong's Hang Seng Bank Ltd holds a 16 percent stake, will sell bonds in China's interbank market, Li Dapeng, a company official said in a phone interview after a shareholders meeting yesterday. Shareholders agreed to buy more stock in the Fuzhou-based bank to help finance branch expansion across the country, he said.

China's banking regulator is encouraging lenders to sell bonds and shares to boost their capital adequacy ratios to more than 8 percent and prepare them for greater competition in 2007 when restrictions on overseas banks are lifted. Industrial Bank's capital adequacy ratio, a key measure of financial strength, was 8.07 percent at the end of last year.

"It's amazing that Industrial Bank has expanded so fast in the past few years without external financing," said Sun Minghua, a banking analyst at Huaxia Securities Co in Shanghai. "Now they've hit the limit."

Larger lenders such as Shanghai Pudong Development Bank, the Chinese partner of Citigroup Inc, and China Merchants Bank are also selling bonds to raise funds. Stock sales have become more difficult because benchmark indexes in the country slumped to an eight-year low.

Industrial Bank, based in East Chna's Fujian Province, won shareholder approval last November to sell shares publicly for the first time. The plan was postponed after the government suspended new share sales to make way for changes that would allow all stock in the nation's 1,564 public companies to be tradable.

The bank may sell 10 billion yuan (US$1.2 billion) of three-year bonds and 5 billion yuan of five-year bonds, the Securities Times reported earlier, without citing anyone.

Formerly known as Fujian Industrial Bank, the lender acquired Foshan City Commercial Bank in December, adding 24 outlets in Foshan city in the southern province of Guangdong. Industrial Bank now operates 318 branches in 23 cities including Shanghai, Beijing, Tianjin and Guangzhou.

The bank earned 2.2 billion yuan (US$271 million) last year, up 38 percent from a year earlier. Its bad-loan ratio stood at 2.5 percent as of December 31, compared with an average of 4.96 percent for China's 12 joint-stock banks.

Industrial Bank, set up in 1988, is 24.98 percent-owned by foreign investors. Hang Seng, a unit of HSBC Holdings Plc, the world's second biggest bank by market value, bought a 16 percent stake in December 2003 for HK$1.6 billion (US$206 million). International Finance Corp, the private investment arm of the World Bank, took a 4 percent stake, and GIC Special Investments, a Singapore government unit, acquired 5 percent.

(China Daily September 22, 2005)