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Bloomberg
Chinese authorities are studying plans to help banks replenish capital as they look to continue with their crackdown on financial risk without hurting credit growth.
The move to promote sales of perpetual bonds as soon as possible comes as new regulations on asset management force banks to absorb off-balance-sheet debts. Swelling soured loans and a slump in share prices are making it harder for banks to raise money. Stronger capital buffers also put the banks in a position to increase lending to private companies and help meet the government’s vow to support the struggling sector.
Banks will face substantial capital constraints next year as the new rules will compel them to move off-balance-sheet debt onto their books, which may increase bad debt and write-offs, said Wang Yifeng, a researcher at China Minsheng Bank.
Perpetual bonds and preferred shares are both tools to replenish tier one capital, said Guo Shi, director of the bond financing department at Hai-tong Securities Co.
While the securities regulator has been approving the former, the central bank’s push for the latter helps banks diversify funding channels.
Financial Stability and Development Committee met to study the plans, according to a statement posted on the People’s Bank of China website
on Wednesday.
Bank of China (BOC) plans to sell as much as 40 billion yuan ($5.8 billion) of perpetual bonds in what could be the nation’s first ever issuance of such debt by a lender.
Shareholders approved the proposal at the end of June, the bank’s representatives said on Wednesday in response to Bloomberg queries.
Approvals are awaited from regulators and there’s no deadline for the sale, people familiar with the matter had said earlier, asking not to be identified as the deliberations are private.