Bank of China plans US$21 billion bond sales to comply with global capital requirements

The loss-absorbing bonds, which are not counted in a bank’s capital base, can be written off, or converted into common equities, when the bank enters the disposal phase.

China’s top five lenders – 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 by Chinese regulators and the Switzerland-based Financial Stability Board (FSB).

The global systemically important lenders are required to hold a TLAC amount of at least 16 per cent of risk-weighted assets starting January 1, 2025, and the bar will be further raised to 18 per cent from January 1, 2028.

The requirements will add to the Chinese lenders’ capital-raising pressure, said Fitch Ratings in a recent note, especially if the banks are under greater strain to support the Chinese economy, property developers and local government financing vehicles.

To meet the requirements, other lenders are also expected to unveil loss-absorbing bond issuance plans soon. The five banks are estimated to issue an additional 1.7 trillion yuan in debt by 2025 and 6.3 trillion yuan by 2028 to plug capital shortfalls to meet the TLAC requirements, Fitch estimated.