Markets· Bond

Chinese banks plan to issue up to RMB 520 bln worth of perpetual bonds

minutes 2019/05/06 06:33:21
perpetual bonds; Central bank bills swap; capital requirements; financial stability board

May 06, 2019 (China Knowledge) - More Chinese banks are planning to issue perpetual bonds in order to replenish capital after the Bank of China became the first bank to successfully issue such bonds earlier in January.

As of last week, 10 major banks have now disclosed plans to sell perpetual bonds, with a combined offering amount of up to RMB 520 billion. These banks include the China Construction Bank, one of the country’s big 4 state banks which is planning to sell RMB 40 billion of perpetual bonds.

Perpetual bonds are a type of bond that does not have a fixed maturity date and will continue making interest payments to investors forever if necessary.

With Chinese banks now running low on capital after a nationwide deleveraging campaign which saw these banks required to set aside greater amounts of capital to hedge off-balance sheet assets and dispose of bad loans, these banks are now looking to issue perpetual bonds to raise capital to meet their capital requirements.

This capital shortage has been felt more strongly by the country’s four largest state-owned banks which need to raise an additional RMB 2.85 trillion in capital by 2025 to meet requirements set by the Financial Stability Board, an international body that makes recommendations for the global financial system.

To aid these banks, China’s central bank has also introduced a Central Bank Bills Swap (CBS) through which qualified banks can swap their perpetual bonds for central bank bills to improve liquidity of the perpetual bonds and support to issuance of these bonds.

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