The capital supplement needs of commercial banks are influenced by factors such as the macroeconomic situation, the bank's own operational status and development strategy, and regulatory requirements, which together determine whether banks need and how much capital they need to strengthen their capital adequacy ratio.
After Bank of Ningbo completed the issuance of 10 billion yuan Tier 2 capital bonds, Taizhou Bank, Sichuan Jianyang Rural Commercial Bank, and Zhoushan Dinghai Ocean Rural Commercial Bank will each complete the issuance of a new series of Tier 2 capital bonds on September 25, 26, and 27, respectively. Data shows that the total amount of Tier 2 capital bonds issued by banks in the second half of this year has exceeded the same period last year.
Industry insiders told Economic Daily reporters that the capital replenishment needs of commercial banks are influenced by factors such as the macroeconomic situation, the bank's own operational status and development strategy, and regulatory requirements. These factors collectively determine whether banks need capital and how much they need to enhance their capital adequacy ratio. After sufficient capital replenishment, banks can not only enhance their ability to resist risks and meet regulatory requirements but also strengthen their capacity to further increase credit extension and support the real economy.
Intensive "Blood Transfusion": Four Banks Issue Tier 2 Capital Bonds in One Week
According to the schedule, Taizhou Bank, Sichuan Jianyang Rural Commercial Bank, and Zhoushan Dinghai Ocean Rural Commercial Bank all issued Tier 2 capital bonds this week, with issuance start dates of September 23, 24, and 26, and completion dates of September 25, 26, and 27, respectively.
Prior to this, Bank of Ningbo had just completed the issuance of 10 billion yuan Tier 2 capital bonds on September 23. According to the latest announcement by Bank of Ningbo, the bond type is a 10-year fixed-rate bond with the issuer's call option at the end of the 5th year and a coupon rate of 2.17%. 'The funds raised from this bond issuance will be used to supplement the company's Tier 2 capital in accordance with applicable laws and regulatory requirements,' said Bank of Ningbo.
Zhao Tingchen, Senior Researcher at Bank of China Research Institute, told the Economic Daily reporter in an interview that there are several main ways for banks to replenish capital. One is to rely on profit accumulation, which is the lowest-cost way of capital replenishment. However, currently affected by factors such as narrowing net interest margins and slowing bank profit growth, the path of profit accumulation for capital replenishment is facing challenges.
"Secondly, through IPOs or stock issuance for refinancing, this can also supplement core Tier 1 capital. However, currently, the number of listed banks is relatively limited, and many small and medium-sized banks have not been listed. In addition, listed banks generally face the issue of stock prices falling below net asset value per share, resulting in low efficiency of issuing stock financing,' Zhao Tingchen further stated. 'Another method is to issue Tier 2 capital bonds and perpetual bonds, which have become important means for banks to replenish capital.'
Regarding the issuance of secondary capital bonds by banks, analyst Zhou Maohua from China Everbright Bank's Financial Markets Division told Caixin media reporters that in recent years, some banks have seen a narrowing net interest margin, leading to a slowdown in profit growth. This has created certain pressure for internal capital replenishment, especially since some banks have relatively narrow financing channels. This inevitably drives some banks to increase the demand for capital tool financing. In addition, banks actively increase capital replenishment to enhance risk resistance capabilities, support credit expansion, and meet relevant regulatory requirements.
In the second half of this year, the total issuance scale of banks has reached 352.2 billion yuan, exceeding the same period last year.
Secondary capital bonds are important tools for commercial banks to supplement tier 2 capital. According to Wind statistics, since the second half of the year, the total issuance of secondary capital bonds by banks has reached approximately 352.2 billion yuan, exceeding the 212.8 billion yuan from the same period last year. In July and August, the issuance scale was 148.8 billion yuan and 184.9 billion yuan respectively, with the monthly issuance scale second only to the 200 billion yuan in April of this year. In general, around 20 small and medium-sized banks have issued tier 2 capital bonds in the second half of the year.
In response, Zhou Maohua told Caixin reporters that tier 2 capital bonds are a routine tool for commercial banks to supplement tier 2 capital and are good investment targets. Additionally, the issuance process of tier 2 capital bonds is relatively simple, with advantages like low issuance thresholds. In recent years, domestic regulatory authorities have supported qualified small and medium-sized banks in widening their capital replenishment channels.
Perpetual bonds and tier 2 capital bonds are collectively referred to as 'dual perpetual bonds'. Based on relevant data, in the first half of 2024, the issuance of dual perpetual bonds increased significantly year-on-year, totaling an increase of 444.25 billion yuan. Regarding the significant increase in dual perpetual bonds issuance, a China Post Securities analyst believes it may be due to two factors: firstly, against the backdrop of asset shortages, bond issuance rates have continuously decreased in the first half of the year, leading banks to issue more bonds for cost considerations; secondly, in the second half, especially with a large scale of dual perpetual bonds, particularly perpetual bonds awaiting redemption, early issuance and replacement are required.
HTSC analysts also mentioned that the combination of low financing costs, ample approvals, and a significant maturity scale of dual perpetual bonds in the second half of the year has led to a significant net financing increase of dual perpetual bonds since the beginning of this year. What factors influence the issuance pace of dual perpetual bonds? GTJA researcher Liu Yu stated that based on historical data, the issuance pace of dual perpetual bonds is mainly influenced by changes in their own capital adequacy ratio and balance management system. This influence has a certain leading nature. Adjustments are also made considering market interest rates for issuance pace, with such influences often showing some lag.
