China to Issue US$69B in Special Bonds for Big Banks

China plans to issue 500 billion yuan (US$69 billion or RM306.46 billion) in special sovereign bonds, as it seeks to boost capital at its biggest banks to support the economic recovery, according to the government’s annual work report.

The debt will be issued to replenish core Tier-1 capital at big state-owned banks, beef up their operations and their capability to service the real economy, according to the report seen by Bloomberg News.

The plan to help out the banks, which are struggling with record low margins, was first flagged as far back as September. The government later said it would tap special sovereign bonds to fund the injections.

China is beefing up the strength of its banking system — even though the top six have capital levels that exceed requirements — after enacting a string of stimulus policies including cuts to mortgage rates and key policy rates. Enlisted to support the economy over the past few years, the lenders are battling record low margins, slowing profit growth and rising bad debt.

China’s biggest banks include Industrial & Commercial Bank of China Ltd and Agricultural Bank of China Ltd, among others.

China reiterated its vigilance on risk in the work report, saying it will replenish “risk mitigation resources”, such as the deposit insurance fund and financial stability fund, as well as improve its contingency plan for external shocks.

It will also work to foster mergers and acquisitions to help with risk reduction and transformation at the nation’s small- and medium-sized financial institutions.

As for the larger lenders, authorities are looking to add at least 400 billion yuan of fresh capital into the first batch of three lenders by as soon as end-June, people familiar with the matter have said. The total injections could amount to as much as one trillion yuan for the largest lenders, Bloomberg News reported last year.

Source: Theedgemarkets