Tier-2 Capital Bond Issuance by Chinese Banks Doubles as Beijing Pushes for More Lending

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Commercial banks in China have stepped up efforts to improve their capital standing via debt issues, as the Chinese central government pushes for them to provide greater support to the real economy.

As of 23 August Chinese commercial banks had issued 509.4 billion yuan in tier-2 capital bonds, for an increase of 98.8% compared to the same period last year, according to figures from financial data provider Wind.

August has seen two major issues by leading Chinese banks. These include the issuance of 40 billion yuan in tier-2 capital bonds by Industrial and Commercial Bank of China (ICBC) on 18 August, followed by the issuance of 30 billion yuan in tier-2 capital bonds by Huaxia Bank.

Big state-owned lenders Agricultural Bank of China (ABC), China Construction Bank (CCB) and ICBC have collectively issued 250 billion yuan in tier-2 capital bonds since the start of the year.

Funding costs for Chinese commercial banks have also fallen in 2022. The average rate for tier-2 capital bonds issued by Chinese banks in 2022 is 4.29%, for a decline of 0.44 percentage points compared to the same period last year, according to a report from China Securities Journal.

Domestic observers say that improvements to the capital levels of Chinese banks are part of efforts to spur lending to China’s real economy. These efforts have included reductions to rates for the Chinese central bank’s open market instruments and subsequent declines in the benchmark loan prime rate.

A recent meeting of the People’s Bank of China (PBOC) called for key financial institutions, and in particular the big state-owned banks, to “maintain the stability of overall growth in loan volumes.”