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China’s Industrial and Commercial Bank (ICBC) announces plans to issue 30 billion yuan ($4.15 billion) worth of Total Loss-Absorbing Capacity (TLAC) bonds on May 15, marking a significant milestone as the first such issuance by a Chinese bank.
Capitalization Pressures:
Major state-owned Chinese lenders are taking proactive steps to strengthen their financial positions, facing mounting pressure to bolster capital reserves, particularly amidst increased demands to support the economy, property developers, and local government financing vehicles.
ICBC’s issuance comprises 20 billion yuan in four-year bonds, redeemable at the end of three years, and 10 billion yuan in six-year bonds with conditional redemption at the end of five years. The bond prospectus, released on the Shanghai Clearing House website, outlines the terms and conditions of the issuance.
Utilization of Proceeds:
The proceeds from the TLAC bonds will enhance ICBC’s total loss-absorbing capacity, reinforcing the bank’s resilience in times of financial stress. The issuance period spans from Wednesday to Friday, facilitating swift capital injection into the bank’s operations.
Regulatory Compliance:
As globally systemically important banks (G-SIBs), ICBC and other central Chinese state-owned banks align with stringent regulatory requirements on capital buffers. Although not considered part of a bank’s capital base, TLAC bonds serve as crucial instruments in bolstering financial stability and regulatory compliance.
Addressing Capital Shortfalls:
Major Chinese banks continue to face significant TLAC shortfalls despite proactive issuance efforts. Fitch Ratings estimates a collective shortfall of 1.6 trillion yuan for the nation’s largest state banks by January 2025, underscoring the ongoing challenges in meeting regulatory capital requirements.
