Bank Of China To Raise $21 Bn In Bonds To Meet Global Capital Rules
Bank of China has announced plans to issue up to 150 billion yuan (USD 21 billion) of loss-absorbing bonds, making it the first major state bank in China to address a significant funding shortfall before the 2025 deadline for meeting global capital requirements.
The bank intends to sell a new category of total loss-absorbing capacity (TLAC) bonds in both domestic and overseas debt markets, according to a filing with the Shanghai Stock Exchange on Friday. China's banking regulator allowed major state-owned banks to issue TLAC bonds in 2022 to enhance stability in the financial system.
TLAC bonds, not included in a bank's capital base, can be written off or converted into common equities during the disposal phase. China's top five lenders, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications, are designated as global systemically important banks.
These lenders are required to hold TLAC equivalent to at least 16 per cent of risk-weighted assets starting 1 January 2025, with an increase to 18 per cent from 1 January 2028. This move adds to the capital-raising pressure on Chinese banks, especially if they are under strain to support the economy, property developers and local government financing vehicles.
Fitch Ratings estimates that the five banks will issue an additional 1.7 trillion yuan in debt by 2025 and 6.3 trillion yuan by 2028 to meet TLAC requirements. Other lenders are expected to announce loss-absorbing bond issuance plans soon to meet the new regulatory standards.
