Perpetual Bond Issuance by Chinese Banks Surges Since Start of 2022

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Chinese banks have stepped up their issuance of perpetual bonds since the start of 2022, as part of efforts to improve their capital levels.

6 Chinese banks have issued a total of 87 billion yuan in perpetual bonds since the start of the year, for an increase in terms of the number of banks and funds raised compared to the same period last year, when just 3 banks had issued a total of 4.5 billion yuan in the instruments.

Agricultural Bank of China (ABC) was the most recent issuer, with a 50 billion yuan issue of perpetual bonds on 21 February.

Other major perpetual bond issues have included a 30 billion yuan issue by Postal Savings Bank of China on 14 January, and a 3 billion yuan by Bank of Suzhou on 13 January.

Data from Wind indicates that the coupon rate for perpetual bonds issued in 2022 has been 4.12%, as compared to 4.8% for the same period last year.

The surge in issuance volumes arrives amidst ongoing pressure from Chinese regulators for banks to step up their capital adequacy ratios.

As of the end of 2021 Chinese commercial banks had an overall capital adequacy ratio of 15.13%, for an increase of 0.33 percentage points compared to the end of the third quarter of that year.

The tier-1 capital adequacy ratio was 12.35%, for an increase of 0.23 percentage points in the fourth quarter, while the core tier-1 capital adequacy ratio was 10.78%, for a rise of 0.12 percentage points.

“Given regulatory pressure, the future supply of tier-2 capital bonds and perpetual bonds from commercial banks will be inelastic, as they further supplement capital,” said one source from a municipal lender to state-owned media.