Big four state-owned lender Bank of China (BOC) has become the first Chinese bank to obtain approval for the issuance of perpetual bonds under a new scheme that seeks to bolster languishing capital levels.
The China Banking and Insurance Regulatory Commission (CBIRC) gave its approval on Thursday to the issuance of up to 40 billion yuan (approx. USD$5.9 billion) in perpetual bonds by BOC, according to a statement posted on the regulator’s official website.
According to CBIRC the issuance of perpetual bonds will help Chinese banks to boost their capital levels and improve their capital structures, as well as expand lending and heighten risk resilience.
On 25 December China’s Financial Stability and Development Committee (FSDC) announced that it would push for the issuance of perpetual bonds “as soon as possible,” as part of efforts to expand channels to support improvements to capital adequacy by Chinese commercial banks.
Experts speaking to the Chinese central bank’s official news outlet said that in addition to easing capital pressure on the banking sector, perpetual bonds would also be of benefit to further optimisation of the capital structure of listed banks and help small and medium-sized banks to boost their non-core tier 1 capital, thus enabling them to better service the real economy.
“Perpetual bonds refers to bonds that do not have a clear maturation date or whose terms are extremely long, and in theory continue perpetually,” said Dong Ximiao (董希淼), a senior researcher from the Chongyang Institute for Financial Studies at the Renmin University of China, to Financial News.
“The drive to launch the issuance of perpetual bonds as soon as possible is both extremely timely and extremely important…having multiple channels to shore up capital will help the healthy and sustainable growth of commercial banks, as well as be of benefit to upgrading the ability of commercial banks to service the real economy.”