China Merchants Bank's rights issue won't address all its capital woes

The long-awaited $3.2 billion rights issue of China Merchants Bank CMB is one step closer to happening. The lender has announced a plan to offer 1.3 new shares for every 10 held by investors of its Shanghai- and Hong Kong-listed stock, but analysts warn the bank will remain a thinner capitalised lender even after the capital replenishment.

CMB, the country's fifth-largest lender by market value, has seen its core capital deteriorate and a significant rise in leverage after its expensive acquisition of Hong Kong's Wing Lung Bank and rapid loan expansion over the last 12 months. Proceeds from the fundraising will be insufficient to shield the bank against hidden credit risk, analysts...