On June 12th, Cailian Press (Reporter Si Sitong) announced that as the business scale continues to expand, banks also face pressure to supplement their capital. On June 12th, Hua Xia Bank announced a successful completion of the first phase of perpetual capital bond issuance in 2024, with a final issuance scale of 40 billion yuan, and the funds raised will be used to supplement other tier one capital of the company.

Cailian News noticed that in recent years, Hua Xia Bank's level of capital adequacy has fluctuated, with the capital adequacy ratios of tier one capital from 2021 to 2023 at 10.98%, 11.36% and 10.48%, respectively. During the same period, the bank's operating performance has also continued to be under pressure, with revenue for 2021 to 2023 at 95.87 billion yuan, 93.808 billion yuan, and 93.207 billion yuan, respectively.

In the industry's view, as banks continue to increase their service to the real economy, the continuous growth in credit investment will aggravate capital consumption, and banks urgently need to enhance their own risk resistance by supplementing their capital strength. As a listed company, Hua Xia Bank has a diversified capital supplementation channel, but future business development will still put continuous pressure on the bank's capital structure. In addition, the bank's profitability is also affected by adverse factors such as a downward trend in interest rates and rising pressure on non-performing assets.

Completion of the 40 billion perpetual bond issue

Specifically, in May, Hua Xia Bank's "Application for the Issuance Quota of Capital Instruments Plan" has been approved by the China Banking and Insurance Regulatory Commission. According to the approval, the bank is allowed to issue 80 billion yuan of capital instruments, with the type of perpetual capital bond being issued.

Subsequently, Hua Xia Bank recently issued its first perpetual capital bond (phase one) in the national interbank bond market, which was completed on June 11th. The bank said that the current bond issue has a scale of RMB 40 billion yuan, with a coupon rate of 2.46% for the first five years, which will be adjusted every five years. Furthermore, the bondholder has a conditional redemption right after the fifth year and for every interest payment date thereafter.

"The funds raised from this bond issue will be used to supplement the company's other tier one capital in accordance with applicable laws and regulations approved by regulatory agencies," said Hua Xia Bank. Based on data as of the end of March 2024, the first phase of bond issuance will increase the bank's tier one capital adequacy ratio and capital adequacy ratio by 1.31 percentage points each.

Looking at the relevant indicators, Hua Xia Bank's level of capital adequacy has fluctuated in recent years. Data shows that the bank's capital adequacy ratios at the end of 2021 to 2023 were 12.82%, 13.27%, and 12.23%, respectively, with tier one capital adequacy ratios of 10.98%, 11.36%, and 10.48%, respectively, and core tier one capital adequacy ratios of 8.78%, 9.24%, and 9.16%, respectively. In the first quarter of this year, the above three indicators of the bank have all rebounded, reaching 12.55%, 10.75%, and 9.44%, respectively.

In this regard, China Chengxin International Rating Co., Ltd. pointed out in its rating report that in recent years, Hua Xia Bank has supplemented its capital through non-public issuance of shares, the issuance of preferred shares, secondary capital bonds, perpetual bonds, etc. However, due to the continuous growth of business scale in 2023 and the bank's redemption of 20 billion yuan of preferred shares, its core tier one capital adequacy ratio and capital adequacy ratio have both decreased compared to the beginning of the year.

In the view of China Chengxin International, as a listed company, Hua Xia Bank has diversified capital supplementation channels, but future business development will still put continuous pressure on the bank's capital structure. The issuance of this perpetual capital bond will help the bank improve its capital structure and enhance its capital strength.

There may still be pressure to continue supplementing capital

In the view of analysts in the industry, as the domestic economy gradually recovers and financial institutions increase their service to the real economy, the continuous growth in credit investment will continue to aggravate capital consumption. Commercial banks, especially some medium and small-sized banks, urgently need to expand their capital strength, enhance their risk resistance, and further improve their capability to serve the real economy.

At the same time, China Chengxin International also pointed out that commercial banks have continued to supplement their capital through profit retention and maintaining a large amount of capital supplementation bond issuance. However, due to the weakening of internal capital accumulation capacity and the expansion of credit scale under policy promotion, the pressure to supplement capital still persists.

In fact, in terms of business operations, in recent years, Hua Xia Bank's revenue scale has shown a gradual decline, and its net profit growth rate has also slowed down.

Data shows that from 2021 to 2023, the bank achieved operating revenue of 95.87 billion yuan, 93.808 billion yuan, and 93.207 billion yuan, respectively, with a year-on-year increase of 0.59%, -2.15%, and -0.64%, respectively. During the same period, its attributable net profit was 23.535 billion yuan, 25.035 billion yuan, and 26.363 billion yuan, with a year-on-year increase of 10.62%, 6.37%, and 5.30%, respectively. Meanwhile, its net interest margin was 2.35%, 2.10%, and 1.82%, respectively.

Hua Xia Bank's profitability needs to be improved, and its asset quality is facing sustained pressure. The short-term liquidity risk control is relatively difficult, and it faces continued pressure to supplement capital. Zhongchengxin International candidly stated that in the first quarter of 2024, the bank's pressure to narrow interest rate spreads continues to exist, and its profits in the future are still affected by unfavorable factors such as the rise of non-performing assets, the downward trend of interest rate spreads, and uncertain growth in fund business income.

In the first quarter of 2024, Hua Xia Bank achieved a revenue of 22.114 billion yuan, a year-on-year decrease of 4.34%; The net profit attributable to equity holders of the bank for the same period was 5.89 billion yuan, a year-on-year increase of 0.61%. At the same time, its net interest margin further dropped to 1.62%, a decrease of 0.2 percentage points from the beginning of the year.