Chinese Banks Issue 147B Yuan in Perpetual Bonds in 2022 as “Asset Drought” Brings Funding Costs Down

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Chinese banks have rushed to issue perpetual bonds since the start of 2022, in order to take advantage of low funding costs to shore up their capital adequacy ratios.

As of 31 May 11 listed banks in China had completed 12 perpetual bond issues since the start of the year to raise 147 billion yuan in total, according to data from Chinabond.com.cn.

Big state-owned bank Postal Savings Bank of China (PSBC) announced on 30 May that its board had approved the issuance of up to 90 billion yuan in perpetual bonds to supplement its tier-1 capital, contingent upon approval from regulators.

Ming Ming (明明), chief economist with CITIC Securities, said to the Securities Daily that Chinese commercial banks are taking advantage of prevailing low funding costs to shore up their capital standing.

“At present, as a result of an ‘asset drought,’ perpetual bonds are being hotly pursued,” said Ming.

“Coupon rates continue to decline, and by issuing perpetual bonds at this point in time, banks can achieve supplementation of their higher-tier capital for comparatively low financing costs.”