Chinese banks rush to issue bonds for more funds

CHINESE banks are rushing to issue bonds for more funds in a bid to meet stricter capital adequacy requirements set to be implemented next year.

The Bank of Ningbo, a Zhejiang Province-based lender, on Thursday launched bids for subordinated debts worth 3 billion yuan (US$482 million), following a 40 billion yuan issuance by the China Construction Bank on Tuesday.

About 150 billion yuan of subordinated debts may enter the bond market toward the end of this year under borrowing plans revealed by banks.

Financial institutions disclosing similar plans include the Bank of China, 23 billion yuan, the Agricultural Bank of China, 50 billion yuan, Shanghai Pudong Development Bank, 10 billion yuan, China Merchant Bank, 23 billion yuan, and Huaxia Bank, 10 billion yuan.

The borrowing spree comes as a new banking capital regulation is due to take effect on January 1. The regulation accords with the Basel III rules agreed by G20 countries in 2010.

Released in June, the regulation stipulates the core capital adequacy ratio for "systematically important banks" should reach a minimum of 9.5 percent before the end of next year.

Other banks should raise their core capital to no lower than 8.5 percent of their total assets by the end of 2016.

The moves were fueled by the need for banks to restructure their capital structure and meet stricter rules next year, said Zhao Qingming, a financial expert at the University of International Business and Economics.

The regulation also stipulates that subordinated debts will not be seen as regulatory capital next year unless banks have written down their assets accordingly or convert them into shares.

"Under the context, it is important for banks which intend to raise money from bonds to grasp the remaining period of the year," Zhao said, adding that the timing was good as disappointing stock investors are turning to the bond market.

The tougher rules, which aim to control banking risks, are introduced at a time when Chinese banks are facing an enduring credit crunch due to huge market demand and the government's tightening efforts to mop up liquidity.

The government has spent two years trying to tame inflation and real estate prices. In the period, the People's Bank of China raised key interest rates five times and the amount of cash banks need to put aside as reserves 12 times.

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