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Banking & finance
BusinessBanking & Finance

China’s top banks plan US$5.8 billion of bond sales to plug capital shortfall

  • ICBC, China Construction Bank, Agricultural Bank of China and Bank of China need to raise capital by 2025 to meet global rules
  • The move comes after Swiss regulators shocked investors with the wipeout of AT1 bonds issued by Credit Suisse during its rescue

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China’s top banks including ICBC are planning to sell at least 40 billion yuan worth of bonds to comply with global rules. Photo: Reuters
Bloomberg

China’s megabanks are planning at least 40 billion yuan (US$5.8 billion) of bond sales, kicking off a major funding push to comply with global capital requirements by early 2025.

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Industrial and Commercial Bank of China (ICBC) and its three closest rivals are planning to tap domestic debt markets to sell a new category of total loss-absorbing capacity (TLAC) bonds as soon as June, according to people familiar with the matter. The exact amounts have not been finalised but each bank is targeting at least 10 billion yuan, said the people, who asked not to be named as the information has not been made public.

China’s big banks have typically relied on so-called additional tier-1 and tier-2 bonds in recent years to replenish capital. But the lenders are now seeking to issue a more senior type of TLAC bond that can also be used towards meeting regulatory requirements. The new TLAC bonds may offer a smoother way to raise capital for the banks since they absorb losses after the other two instruments in case of a risk event that threatens operations or even survival of a lender.

The planned issuance comes at a shaky time for global debt markets after Swiss regulators shocked investors with the wipeout of AT1 bonds issued by Credit Suisse Group when they orchestrated a rescue of the lender. The move triggered some lenders to delay their planned debt sales and made investors wary of adding new exposure to such notes.
The wipeout of AT1 bonds issued by Credit Suisse shocked investors. Photo: Keystone via AP
The wipeout of AT1 bonds issued by Credit Suisse shocked investors. Photo: Keystone via AP

China’s big four state-owned banks – ICBC, China Construction Bank (CCB), Agricultural Bank of China (ABC) and Bank of China (BOC) – which are deemed globally systemically important, face a capital shortfall of as much as 3.7 trillion yuan by 2025 to comply with TLAC requirements, according to S&P Global Ratings. Fitch Ratings sees a smaller gap of 1.3 trillion yuan based on capital positions levels at end of last year. Estimates vary depending on projections of profit, dividends, and asset growth, among other factors.

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