Smaller banks in China account for the majority of lender who have issued perpetual bonds in 2020 to shore up their capital standing.
Since the start of the year eight banks have completed successful issues of perpetual bonds, with smaller municipal commercial banks and rural commercial banks accounting for six of them.
The issuance amount totals 149 billion yuan, with smaller banks accounting for 26% of the total.
Chinese banks that have issued perpetual bonds in 2020 include big national banks such as Postal Savings Bank of China (PSBC) and Ping An Bank, as well as Shenzhen Rural Commercial Bank and Huarong Xiangjiang Bank Corporation Limited.
Shenzhen Rural raised 5.3 billion yuan and Huarong Xiangjiang raised 2.5 billion yuan via deals in April.
The People’s Bank of China (PBOC) approved the issuance of perpetual bonds by Chinese banks at the start of 2019, in order give lenders an additional channel for capital supplementation purposes.
PBOC simultaneously announced the launch of central bank bill swaps (CBS), with the goal of bolstering the liquidity of perpetual bonds, as well as the acceptance of bank perpetual bonds with ratings of no lower than “AA” as qualified collateral for medium term lending facilities (MLF), targeted medium term lending facilities (TMLF) and standard lending facilities (SLF).
A total of 15 Chinese banks issued nearly 570 billion yuan in the instruments in 2019.
Pan Helin (盘和林), head of the Digital Economy Research Institute at the Zhongnan University of Economics and Law, said to Securities Daily that perpetual bonds have proved a highly successful means for small and medium-sized banks to boost their capital adequacy ratios.
“This will support the development of small and medium enterprises, and be of huge assistance to providing a financial ‘blood infusion’ to the real economy.”