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Chinese banks expected to issue perpetual bonds to raise capital
2018/12/27 02:50:15
China's News, China's Financial News, perpetual bonds

Dec 27, 2018 (China Knowledge) - The office of the Financial Stability and Development Committee, a cabinet-level entity created last year, organized a meeting on Tuesday which contemplated ways to promote China’s commercial banks’ capital-raising capabilities, said a statement released by the committee on Wednesday.

The committee was created to co-ordinate the various financial regulatory agencies in China. Chinese banks had relied exclusively on common equities in meeting their capital requirements until 2013. They have since adopted a wider and more diverse range of instruments which include preference share, and tier-2 capital bonds which are also known as Basel bonds.

The office is seeking channels to help commercial banks replenish their capital with the aim of introducing regulations which will allow the banks to issue perpetual bonds as a mean to raise capital, as soon as possible. Perpetual bonds will allow Chinese banks to meet capital adequacy requirements at a lower cost than with common equity.

Beijing has been putting pressure on banks to boost capital, a key element in its effort to contain financial risks form the country’s dangerous debt growth. The country has also been warned by International Monetary Fund (IMF) with regards to its high debt level, further exacerbated by the rapid expansion of the shadow banking sector.

The fourth-largest lender, by assets, Bank of China, had announced in April regarding its plans to issue up to USD 5.8 billion in perpetual bonds to replenish its tier-1 capital.

This committee’s announcement came after the Chinese banking regulator had issued a statement instructing commercial lenders to experiment more innovative instruments to boost their capital adequacy, including the use of both convertible and perpetual bonds.

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