Chinese banks study bond sale to raise capital

(Shanghai Daily)

08:44, September 28, 2011

The Chinese government's stricter liquidity requirement on domestic banks has prompted them to consider sales of subordinated bonds to replenish their capital.

The board of the Industrial and Commercial Bank of China has approved a plan to sell up to 70 billion yuan (US$10.94 billion) in subordinated debt with a maturity of not less than five years, the world's biggest lender said in a statement to the Shanghai Stock Exchange yesterday.

The Shanghai Pudong Development Bank has won approval from the China Banking Regulatory Commission to sell as much as 18.4 billion yuan in subordinated debt, according to a statement it filed to the Shanghai bourse.

The Agricultural Bank of China has sold 50 billion yuan worth of subordinated bonds and China Construction Bank, the world's second-largest lender by market value, also unveiled a sale of as much as 80 billion yuan of subordinated bonds.

The CBRC, the banking regulator, has ordered systemically important banks, including the country's five largest banks, to have a minimum capital adequacy ratio of 11.5 percent by the end of 2013 to limit potential risks in their credit expansion. The other lenders will need to meet the CAR by the end of 2016.

The CAR determines the capacity of the bank in terms of meeting time liabilities and other risks, including credit risk and operational risk.

The CBRC said the average CAR of domestic commercial banks was 11.8 percent at the end of March, down 0.4 percentage point from the end of 2010.

The stricter rules were imposed because domestic banks sought to raise funds to replenish their capital due to last year's lending binge.

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