On May 13, Bank of China announced that Bank of China will issue 2024 Total Loss Absorption Capacity (TLAC) non-capital bonds (Phase I) in the national interbank bond market on May 16 after the approval of the State Administration of Financial Supervision and Administration of the State Administration of Financial Supervision on the issuance of non-capital debt instruments with total loss-absorbing capacity by Bank of China and the Decision of the People's Bank of China to grant administrative licenses. The basic issuance size is RMB30 billion.
Previously, ICBC also issued an announcement on May 11, announcing that it would issue the bank's 2024 total loss-absorbing capacity non-capital bonds (Phase I) on May 15, with a basic issuance scale of 30 billion yuan.
In October 2021, the People's Bank of China, the former China Banking and Insurance Regulatory Commission (CBIRC) and the Ministry of Finance (MOF) jointly issued the Measures for the Management of the Total Loss-Absorbing Capacity of Global Systemically Important Banks, which set out clear requirements for the ratio of the total external loss-absorbing capacity of global systemically important banks: the risk-weighted ratio and leverage ratio of the total external loss-absorbing capacity shall not be less than 16% and 6% respectively from January 1, 2025, and shall not be less than 18% and 6.75% respectively from January 1, 2028.
At present, a total of five domestic banks have been included in the latest list of global systemically important banks released by the Financial Stability Board, namely Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and Bank of Communications.
Industry experts said that as global systemically important banks, the five major banks of industry and agriculture, China and China, in the process of implementing TLAC requirements, if they simply rely on profits to endogenously supplement capital, it may limit the investment and growth rate of assets, so they should pay more attention to innovative design and issuance of total loss absorption capacity tools, effectively meet regulatory requirements, and maintain economic and financial stability.
TLAC non-capital bonds are innovative bond varieties of global systemically important banks, which are financial bonds issued by global systemically important banks to meet the requirements of total loss absorption capacity, which have the function of absorbing losses and do not belong to the capital of commercial banks.
"The issuance of TLAC non-capital bonds is designed to enhance the resilience of global systemically important banks in the event of risk." Zeng Gang, director of the Shanghai Finance and Development Laboratory, said in an interview with the Financial Times.
Since the beginning of this year, the five major banks have successively announced their plans for the issuance of TLAC non-capital bonds.
According to the relevant information disclosed by the five major banks, the scale of TLAC non-capital bonds to be issued by the five banks of industry and agriculture and China Construction and Communications will not exceed 60 billion yuan, 50 billion yuan, 150 billion yuan, 50 billion yuan and 130 billion yuan respectively, with a total of no more than 440 billion yuan.
"TLAC non-capital bonds, as an additional reserve debt instrument to absorb risk when it arises, can help improve the credit soundness of large banks." At the same time, Zeng Gang said, it can also reduce the moral hazard of large banks, thereby maintaining economic and financial stability.
Source: Financial Times client
Reporter: Zo Xi
Editor: Duan Jiaxi
Email: [email protected]