Move will allow banks to supplement their Tier 1 capital
The China Banking and Insurance Regulatory Commission has given the green light to the Bank of China (BOC) to issue no more than 40 billion yuan of perpetual bonds to boost banks’ capital adequacy, Yicai.com reported.A perpetual bond is a bond with no maturity date, and issuing a perpetual is the main way for commercial banks to supplement their Tier 1 capital internationally. There is no precedent for this in China.In 2018, five major state-owned banks, a joint-stock bank and a city commercial bank released capital supplement plans totaling 439.2 billion yuan.It is easier to boost Tier 2 capital by issuing subordinated debts and Tier 2 capital bonds. In contrast, it is more difficult to supplement Tier 1 capital, and at present, banks mainly rely on private placement, IPOs, and preferred stocks issuance to boost their core capital.“These methods will cause additional pressure on the capital market, so banks find it a constraint to increase their Tier 1 capital,” said Wen Bin, chief analyst at China Minsheng Bank.
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