Special Debt Scale Innovation: High, Middle and Small Banks "Replenish Blood and Strengthen Body"

Our reporter Ci Yupeng reports from Beijing

According to the statistics of the reporter of China Business Daily, as of December 14, the issuance scale of special bonds of small and medium-sized banks has reached 208.28 billion yuan, 3.31 times the annual scale in 2022, reaching a historical high, and the annual issuance scale has exceeded 200 billion yuan for the first time.

Industry insiders said that some small and medium-sized banks mainly supplement capital through endogenous methods such as profit retention, because their exogenous capital replenishment tools are subject to business qualifications, and special bonds are an important way, and it is recommended that relevant departments introduce relevant supporting preferential policies as soon as possible to further reduce the comprehensive cost of bond issuance. In addition, it should be noted that the supplementary capital of special bonds can alleviate the capital shortage of small and medium-sized financial institutions in the short term, but it cannot be used as a stable source of capital.

The issuance of special bonds increased

On December 13, according to the information published by China Bond Information Network, Hainan Province plans to issue a total of 10 billion yuan in 2023 to support the development of small and medium-sized banks (Phase I), which is a book-entry fixed-rate interest-bearing bond. The maturity of the bonds is 10 years, the interest is paid semi-annually, and the principal is repaid annually at 20% of the issuance size in the 6th to 10th years (2029-2033) during the duration of the bond. After the issuance of the bonds, they can be circulated in the national inter-bank bond market and the stock exchange bond market in accordance with the regulations.

It is understood that the Hainan Provincial Government has included the current bonds in the budget management of the Hainan Provincial Government Fund, and the equity dividend income and equity market-oriented transfer income corresponding to the fund-raising and investment projects are the main sources of debt repayment. The funds raised by this bond of 10 billion yuan are planned to be injected into the proposed Hainan Rural Commercial Bank through Hainan Finance Group Co., Ltd., all of which will be used to supplement the capital of Hainan Rural Commercial Bank.

On December 2, public information disclosed that in 2023, the Shandong Provincial Government plans to issue a total of 25 billion yuan of special bonds (phase I) to support the development of small and medium-sized banks, with a maturity of 10 years. Interest is paid semi-annually, with a duration of 6-10 years (2029-2033), and the principal is repaid at 20% of the issuance size on December 11 of each year.

It is understood that the above-mentioned bonds are new special bonds, and the funds raised will be used to support the development of small and medium-sized banks at the provincial level in Shandong Province, Jinan City, Zibo City, Zaozhuang City, Dongying City, Yantai City, Jining City, Tai'an City, Weihai City, Rizhao City, Dezhou City, Liaocheng City and Heze City. This bond plans to raise 25 billion yuan, which will be used for a total of 84 projects, including 40 rural commercial bank projects at the provincial level to support the development of special bonds for small and medium-sized banks, Jinan Rural Commercial Bank projects to support the development of special bonds for small and medium-sized banks, and Laishang Bank projects to support the development of special bonds for small and medium-sized banks.

In addition, the income, expenditure, principal repayment, and interest payment of bonds planned by Shandong are included in the budget management of Shandong Provincial Government Fund, and the repayment guarantee is high. The income of the bond raising and investment projects in this period mainly comes from bank interest income, fee and commission income, investment income, etc., and the repayable debt income of the fund-raising and investment projects during the duration of the total debt can cover the principal and interest of the total debt financing.

Special bonds for small and medium-sized banks refer to bonds issued by local governments to supplement the capital of small and medium-sized banks. On July 1, 2020, the executive meeting of the State Council decided to focus on enhancing the ability of financial services for micro, small and medium-sized enterprises, allowing local government special bonds to reasonably support small and medium-sized banks to replenish their capital, and local governments to supplement the capital of small and medium-sized banks through special bonds, which are mainly divided into two modes: subscribing to qualified capital supplementary instruments of small and medium-sized banks and indirect access shares.

Wind data statistics, as of December 14, Hainan, Shandong, Guangxi, Henan, Guizhou and other places have issued special bonds for small and medium-sized banks this year, and issued 19 bonds, with an issuance scale of 208.28 billion yuan, 3.31 times the annual scale in 2022. In comparison, in 2020, 7 special bonds of small and medium-sized banks were issued, with a total issuance of 35.3 billion yuan, in 2022, 19 special bonds were issued with a total issuance of 159.4 billion yuan, and in 2022, 5 special bonds were issued, with a total issuance of 63 billion yuan.

Strengthening business profitability is fundamental

This year, many places have issued notices on the new quota of special bonds for small and medium-sized banks. According to the Tianjin budget adjustment report, in January this year, the Ministry of Finance issued the "Notice on Issuing the New Special Bond Quota for 12 Provinces including Tianjin to Support the Resolution of Local Small and Medium-sized Banks' Risks" (Cai Shui (2023) No. 4) (hereinafter referred to as "Document No. 4"), issuing 6.7 billion yuan of special bonds for small and medium-sized banks in Tianjin, which will be used to supplement the capital of Bank of Tianjin.

In addition, on January 18, 2023, the Ministry of Finance issued a new special bond limit of 20 billion yuan for Inner Mongolia to support the resolution of risks of small and medium-sized banks. The allocation of funds for the new special bonds should be strictly in accordance with the Notice of the Ministry of Finance on Issuing the New Special Bond Quota for Supporting the Resolution of Local Small and Medium-sized Banks in Six Provinces including Inner Mongolia (Cai Shui [2023] No. 5) (hereinafter referred to as "Circular No. 5") It is required to comprehensively balance the cost-effectiveness of supplementing the capital of small and medium-sized banks with the implementation of bankruptcy rescue, compare and analyze the cost and effect of the individual supplementary capital of rural credit cooperatives and the overall implementation of the reform of the autonomous regional cooperatives, and resolutely put an end to the phenomenon of losses as soon as special bond funds are injected into banks.

According to statistics, the Ministry of Finance has issued special bond quotas for small and medium-sized banks to 18 localities through the above-mentioned No. 4 and No. 5 documents. Such as Tianjin, Guangxi, Yunnan, Anhui, Xinjiang, Hebei, Dalian, Ningxia and other regions.

A financial person in Beijing said that small and medium-sized banks are more inclined to adopt the mode of equity transfer agreement deposits, and urban commercial banks and rural commercial banks perform better than rural credit cooperatives in terms of operation and management, and have more ways to replenish capital.

A banker in southwest China said that small and medium-sized banks need more exogenous supplements, including IPOs, convertible bonds, perpetual bonds, private placements, secondary capital bonds, preferred shares, etc. For rural commercial banks, capital is mainly replenished through endogenous methods such as profit retention, because their exogenous capital replenishment tools are subject to business qualifications, and many banks are not qualified to issue perpetual bonds or Tier 2 capital bonds, while there are very few rural commercial banks listed on the A-share and H-share main board markets. In order to explore new ways for small and medium-sized banks to replenish capital, in August 2020, the former China Banking and Insurance Regulatory Commission (CBIRC) issued the Work Plan for Deepening Reform and Replenishing Capital of Small and Medium-sized Banks (hereinafter referred to as the "Plan").

The banker in the southwest region said that the above-mentioned "plan" supports local governments to use market-oriented channels to introduce investment, enhance the capital strength of small and medium-sized banks, and help small and medium-sized banks replenish capital. Rural financial institutions, in particular, should fully study and strive for the use of this policy tool.

A regulator in the northwest region said that the relevant supporting policies of small and medium-sized banks special bonds need to be further improved to reduce the cost of capital use, and the provincial government in the process of issuing special bonds of small and medium-sized banks, the existence of hidden cost estimates or insufficient situations, to a certain extent affect the financing balance of the project, it is recommended that the relevant departments as soon as possible to introduce relevant supporting preferential policies to further reduce the comprehensive cost of bond issuance, and give full play to the role of bond funds in the real economy.

The above-mentioned bankers in southwest China said that the special bond funds of small and medium-sized banks are used in fund-raising banks, and the repayment guarantee also comes from the operating income of banks, so it is necessary to improve the operation and management capabilities of banks and protect the returns of investors. It should be noted that although the supplementary capital of special bonds can alleviate the shortage of capital of small and medium-sized financial institutions in rural areas in the short term, it is necessary to repay the principal and interest within the specified period, and cannot be used as a stable source of capital.