Chinese Banks Issue $128B in Bonds in First Half of 2021, Smaller Banks Expand Use of Perpetual Bonds to Shore up Capital Standing

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China’s smaller-sized banks have stepped up their use of the bond market as a means of supplementing their capital levels in the first half of 2021.

Chinese banks raised around 830 billion yuan (approx. USD$128.1 billion) via bond issues in the first half of 2021. These issues included tier-2 capital bonds, convertible bonds as well as perpetual bonds, according to figures from Wind.

Small and medium-sized Chinese banks issued 310.5 billion yuan in perpetual bonds during the period to supplement their capital levels, for an increase of 8.15% compared to the same period of 2020.

Chinese authorities have recently sought to expand the availability of channels for smaller banks to access capital, allowing them to make use of share conversion agreement deposits (转股协议存款) and local special bonds.

Nine of China’s provincial governments have announced plans to make special bond issues to support the capital levels of smaller regional lenders, including Guangdong, Shanxi, Zhejiang, Guangxi, Inner Mongolia, Jiangxi, Liaoning, Heilongjiang and Fujian.

Mao Ronghua (周茂华), an analyst from Everbright Bank, said that share conversion agreement deposits had substantially expanded capital supplementation channels for small and medium-sized banks in China, raising their risk-resistance and ability to service the real economy.

Members of industry feel however that these measures are still inadequate given narrowing interest rate spreads, and that regulators will need to further expand capital access channels for non-listed Chinese banks to include preferential share issues and convertible debt.

Mao points out that current capital supplementation channels for smaller Chinese banks are only good as “emergency rescue” measures, and that regulators will need to strengthen their “blood infusion capability” in order to ensure the sound long-term development of these lenders.

“[Regulators] need to engage in the innovation of financing tools to expand capital supplementation channels for small and medium-sized banks, and appropriately reduce the ‘threshold’ for such capital tools to create a friendlier financing environment for them.”

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