For three consecutive years, the "blood replenishment" has exceeded one trillion yuan, and the capital pressure on banks is still large?

What is the significance of the 2021 Central Economic Work Conference deleting the expression "multi-channel supplementary bank capital"? Is the current capital pressure on China's banking industry still large?

According to Wind statistics, in 2021, the issuance scale of secondary capital bonds and perpetual bonds of China's commercial banks will reach 1.2 trillion yuan, which is the third consecutive year of more than one trillion yuan. If you count THE CHANNELS SUCH AS IPOs, convertible bonds, and preferred stocks, the scale of bank "blood replenishment" is even higher.

When it comes to "bank secondary capital bonds", many people may feel strange, in fact, it is in many of the financial management, funds and other products we buy, often as an investment asset at the bottom of the "pressure box". Like the perpetual bonds that landed in 2019, it is a common capital replenishment tool for banks.

Why "replenish blood"? In recent years, the reasons summarized in the industry have focused on several points, including a large number of off-balance sheet assets returned to the table after the new asset management regulations, the exposure of non-performing assets eroded capital, the narrowing of net interest margin led to a decline in the ability to supplement core Tier 1 capital, and the increase in credit delivery to increase the demand for supplementary capital, etc., which occupied or consumed capital.

It can be seen that capital strength is related to the ability of banks to support the real economy and resist risks. The capital adequacy level of China's banking industry is also generally higher than the regulatory requirements. According to the data disclosed by the China Banking and Insurance Regulatory Commission, as of the end of the third quarter of 2021, the core Tier 1 capital adequacy ratio of commercial banks was 10.67%, up 0.17 percentage points from the end of the previous quarter.

Industry insiders said that in the context of strengthening support for the real economy, banks still have certain capital pressure, especially the capital adequacy level of some banks is relatively close to regulatory requirements, so there is a need for supplementation. In addition, with the release of the list of systemically important banks in China and the implementation of the Chinese version of the TLAC (Total Loss Absorption Capacity) management measures, some banks are facing higher capital management capability requirements in the medium and long term.

For the third consecutive year of "blood replenishment", the issuance of bonds by systemically important banks has accelerated

From the earlier allotments, preferred shares, convertible bonds, and secondary capital bonds, to perpetual bonds and local government special bonds in recent years, banks' supplementary capital tools have been constantly "new". Among them, bond financing tools are more favored by banks because of their relatively small impact on the market, and they are the "handles" of many tools.

According to Wind statistics, from 2019 to 2021, the issuance scale of subordinated bonds of China's commercial banks (mainly including secondary capital bonds and perpetual bonds) was 1,165.1 billion yuan, 1,263.69 billion yuan and 1,202.573 billion yuan respectively, breaking through the trillion mark for three consecutive years. Before the perpetual bond did not land in 2019, the scale of subordinated bonds issued by China's commercial banks remained at 200 billion to 400 billion yuan for many years.

The increase in the scale of issuance in recent years is also inseparable from regulatory support. For example, after the explosion of Baoshang Bank in 2019, the market has doubts about the credit level of small and medium-sized banks, resulting in poor channels for small and medium-sized banks to supplement capital, and the Financial Stability and Development Committee of the State Council proposed at many meetings that year to focus on supporting small and medium-sized banks to supplement capital; last year, the outbreak of the epidemic, in order to enhance the ability of small and medium-sized and micro enterprises in financial services, the executive meeting of the State Council proposed to allow local government special bonds to reasonably support small and medium-sized banks to supplement capital.

Therefore, in recent years, when taking stock of the list of "blood replenishment" banks, the proportion of small and medium-sized banks has always been very high. Entering 2021, especially after the fourth quarter, the list of bond issuance has repeatedly appeared in the figure of state-owned large banks and joint-stock banks, and the sale is "big orders". For example, ICBC, CCB, Bank of China, Industrial Bank, etc., the minimum amount of secondary capital bonds issued is more than 30 billion yuan, and the highest ICBC is allowed to issue no more than 190 billion yuan.

"In the fourth quarter, the issuance of bank capital supplementary bonds was relatively large, which enhanced the bank's ability to provide credit and was also of great help to the economy." Liao Zhiming, chief analyst of China Merchants Securities Bank, told reporters.

As for the reasons for the acceleration of bond issuance by some large and medium-sized banks, the industry believes that it is related to the release of the list of systemically important banks in mid-October 2021, and the regulator requires 19 systemically important banks to meet certain additional capital requirements. In addition, the Chinese version of TLAC management measures was also implemented at the end of October. According to the calculations of a number of institutions, before the standard is reached in 2025, the total TLAC capital gap of the four major banks of the workers and peasants that have been identified as systemically important banks in the world is about 2 trillion to 3 trillion yuan, and the annual gap of each bank in the next 5-8 years will be about 100 billion yuan.

At present, the capital adequacy level of the banking industry is worry-free, and the pressure can be reduced by optimizing the credit structure

At present, the capital adequacy level of China's banking industry is generally higher than the regulatory requirements, and there is an upward momentum. According to the data released by the China Banking and Insurance Regulatory Commission, as of the end of the third quarter of this year, the core Tier 1 capital adequacy ratio of commercial banks was 10.67%, up 0.17 percentage points from the end of the previous quarter; the Tier 1 capital adequacy ratio was 12.12%, up 0.22 percentage points from the end of the previous quarter; and the capital adequacy ratio was 14.80%, up 0.32 percentage points from the end of the previous quarter.

Taking the new yardstick of systemically important banks, the capital pressure on banks has not increased significantly. From the third quarter of 2021, the 18 systemically important banks that have been listed have met the new requirements. Among them, the highest grade (group iv) of the four state-owned banks, the core Tier 1 capital adequacy ratios of workers and peasants at the end of the third quarter of the third quarter were 13.14%, 11.18%, 11.12%, and 13.4%, respectively, exceeding the red line (8.5%) by more than 2.5 points; the third group of 3 banks, the bank of communications, China Merchants Bank, and industrial industry at the end of the third quarter, the core tier 1 capital adequacy ratio was 10.68%, 12.31%, and 9.54%, respectively, all exceeding the corresponding red line (8.25%).

It is worth mentioning that the 2021 Central Economic Work Conference deleted the expression "multi-channel supplementary bank capital", how to understand this change? Liao Zhiming said that without excessive interpretation, encouraging banks to replenish capital has always been the general direction, and in recent years, it has been continuously strengthened to support the real economy, so banks still have certain capital pressure.

Zheng Chenyang, postdoctoral fellow of the Bank of China Research Institute, said that in the medium and long term, China is currently facing the triple pressure of demand contraction, supply shock, and expected weakening, and the shift in foreign monetary policy will also bring about an intensification of exchange rate and asset price fluctuations, international capital returns and other impacts to the country, from the central bank's interest rate cut and RRR cut and the signal released by the Central Economic Work Conference, banks will continue to increase credit to support the development of the real economy, coupled with the tightening of regulatory requirements for capital, the pressure on bank capital replenishment is still unabated.

The reform and capital replenishment of small and medium-sized banks should be continuously deepened. According to the data released by the Banking and Insurance Regulatory Commission, as of the end of the third quarter of 2021, the capital adequacy ratio of urban commercial banks was 12.96%, and that of rural commercial banks was 12.46%, lower than the 16.84% of state-owned large banks and 13.4% of joint-stock banks.

The National Finance and Development Laboratory believes that in terms of improving the efficiency of capital management, small and medium-sized banks should first change their business philosophy, shift from "scale" to "quality" priority, and gradually build a capital intensive management mechanism; secondly, they should deal with the balance between capital adequacy and cost. It should be clear that the acquisition of Tier 1 capital through convertible bonds, agreement deposits, etc. can only alleviate the shortage of capital to a certain extent, and its capital cost is significantly higher than the endogenous cost of capital, so small and medium-sized banks still need to strengthen endogenous capital accumulation, optimize the banking business structure and income structure, vigorously develop capital-saving business, and use regional advantages to take the road of differentiated development.

Beijing News shell financial reporter Cheng Weimiao Editor Chen Li Proofreader Guo Li