Chinese Banks Issue Nearly One Trillion Yuan in Perpetual Bonds Since Start of 2019

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The value of perpetual bonds issued by commercial banks is fast approaching the one trillion yuan threshold in the less than two years since the instruments were first approved by authorities.

According to a 14 September report from Securities Daily a total of 39 perpetual bond issues have been made since January 2019, following the latest 3 billion yuan issue made by Qilu Bank in Shandong province.

These issues made by 33 Chinese commercial banks were worth 950.7 billion yuan in total, with issuers including all of the big six state-owned banks, most of the joint-stock banks, as well as municipal commercial bank and rural commercial banks.

Data from iFinD indicates that 21 Chinese banks have made 23 issues of perpetual bonds in 2020, as compared to just seven for the same period last year, and 16 issues for full-year 2019.

At the start of 2019 Chi­na’s cen­tral bank gave its green light to the do­mes­tic is­suance of per­pet­ual bonds by Chi­nese banks, with a view to providing com­mer­cial lenders with an additional channel for improving their cap­i­tal stand­ing. 

Bank of China be­came the first Chi­nese lender to is­sue per­pet­ual bonds, with the sale of 40 bil­lion yuan of the in­stru­ments on 25 Jan­u­ary 2019. 

Data from the China Banking and Insurance Regulatory Commission (CBIRC) indicates that as of the end of the second quarter 2020 the core tier 1 capital adequacy ratio of commercial banks in China was 10.47%, for a decline of 0.41 percentage points compared to the end of the preceding quarter.

The tier-1 capital adequacy ratio was 11.61%, for a decline of 0.34 percentage points, while the capital adequacy ratio was 14.21%, for a decline of 0.31 percentage points.

As of the end of the second quarter the average capital adequacy ratio of China’s 36 A-share banks was 13.89%, for a decline of 0.42 percentage points compared to the end of last year.

Zhen Xinwei (甄新伟), a researcher with the Renmin University International Monetary Research Institute (中国人民大学国际货币研究所) expects the issuance of perpetual bonds by banks to maintain a steady pace in future.

According to Zhen the large-scale replenishing of bank capital will effectively offset its “excessively rapid erosion,” and further shore up the foundations for stable growth.

Zhen said that this will provide conditions for the “sacrifice” of profits to the real economy as advocated by Li Keqiang, lifting their ability to meet financing demand from the real economy, and small businesses in particular.

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