Perpetual Bond Issues by Chinese Commerce Banks Surge over 40% Due to “Urgent Need for Capital”

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Commercial banks in China have stepped up their issuance of perpetual bonds since the start of 2021 as part of efforts to shore up their capital standing.

As of the end of September commercial banks in China had made 43 perpetual bond issues in 2021, for an increase of more than 43% compared to the first three quarters of 2020, according to data from iFinD.

These issues were made by 37 Chinese banks, of whom 30 were small and medium-sized lenders, who positions have long been far more precarious than those of the big state-owned banks.

By comparison the first three quarters of 2020 saw 30 perpetual bond issues by 27 commercial banks in China.

“The marked increase in the number of perpetual bond issues in the first three quarters reflects the current urgency need for commercial banks to supplement their capital,” said Pan Helin (盘和林), executive head of the Digital Economy Research Institute at the Zhongnan University of Economics and Law in Wuhan, to Securities Daily.

“At present the pressure on domestic commercial banks to supplement their capital is very large, and in order to support the development of the real economy and themselves, perpetual bonds are receiving increasing attention from the banks as external methods for capital supplementation.

“In future perpetual bond issuance by banks could remain considerable.”

In spite of the sharp increase in perpetual bond issues however, the total perpetual bond amount has seen a sharp decline of 26.8% to 337.75 billion yuan in the first three months of 2021, as compared to 461.3 billion yuan during the same period last year.

According to observers this decline is due to the increasing number of issues made by small and medium-sized banks.



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