Beijing Commits to Multiple Capital Channels for Chinese Commercial Banks, Opening of Bond Market

The Chinese State Council has announced that it will provide support to further measures to support capital supplementation by China’s commercial banks.

An executive meeting of the State Council convened by Premier Li Keqiang on 11 February approved a resolution to “support commercial banks using multiple channels to supplement capital, further smoothing monetary policy transmission mechanisms, and firmly refrain from ‘flood style irrigation’ while expediting the strengthening of financial support for private and small and micro-enterprises.”

The State Council outlined a raft of measures for commercial banks, including raising the efficiency of examination and approvals for the issuance of perpetual bonds; reducing the threshold for the approval of preferred stock and convertible bonds, and allowing those banks that satisfy requirements to issue multiple forms of capital supplementation instruments.

The State Council will also “guide funds, annual funds and other long-term investors to participate in the capital increases and share expansion of banks; support investment by the wealth management subsidiaries of commercial banks in bank capital supplementation bonds, and encourage foreign invested financial institutions to participate in bond market transitions.”

The State Council stressed that any commercial banks that enjoy measures to shore up their capital must “raise the vigour of support for private and small and micro-enterprises.”

The announcement comes following the launch of multiple measures by the Chinese central government to improve the capital standing of China’s commercial banks, including the permitting the issuance of perpetual bonds and the complementary provision of central bank bill swaps.

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