Major Chinese banks are likely to drive Asia-Pacific banks' debt issuance in the coming months as regulatory requirements and lower capital accumulation from profits push them to tap capital markets for funding needs.
China's four largest banks, designated as global systemically important banks (G-SIBs), are expected to begin issuing total loss-absorbing capacity (TLAC) securities as they face a Jan. 1, 2025, deadline to hold TLAC capital equal to 16% of their risk-weighted assets. Chinese G-SIBs must fill an estimated $550 billion capital gap to meet the requirement, S&P Global Ratings said in a Jan. 18 report.
"The major funding channel for Chinese banks will be in the onshore market," said Andy Suen, co-head of Asia ex-Japan fixed income at global asset manager PineBridge Investments.
Banks in the Asia-Pacific region raised a combined $21.11 billion via debt securities in March, compared with $21.53 billion in the prior month and $32.22 billion a year ago, according to data compiled by S&P Global Market Intelligence on a best-efforts basis. Debt issued by two major Chinese lenders, Bank of China Ltd. and China Construction Bank Corp., accounted for over half of the total, with the remainder coming from Japanese, Australian and Indian banks.
The aggregate debt figures for the region's banks include bonds, senior debt and preferred securities.
Slower profits
Major Chinese banks' lower capital accumulation through profits may also push them to raise capital in the market.
"Banks will need to see external sources to meet regulatory demand," Gary Ng, senior economist at Natixis CIB, said.
Three of the four major banks — China Construction Bank, Bank of China and Agricultural Bank of China Ltd. — posted higher year-over-year net income for the fourth quarter of 2022 as strong loan growth supported profits. Industrial and Commercial Bank of China Ltd. was the only one that reported a decline, with its net income down 1.9% to 94.66 billion yuan.
"With the stronger emphasis on financial risks, other Chinese banks may also be asked to beef up their capital ratios," Ng added.
Big share sales
Asia-Pacific banks raised $16.43 billion in March via share sales, the highest in more than a year, thanks mainly to two billion-dollar secondary offerings from Japan Post Bank Co. Ltd. and Postal Savings Bank of China Co. Ltd., Market Intelligence data show.
Japan Post Bank's $8.04 billion equity offering involved its parent Japan Post Holdings Co. Ltd.'s sale of shares in the unit as it sought to cut its stake to comply with regulatory requirements. Postal Savings Bank of China raised $6.53 billion by selling shares equal to a 6.83% stake in a nonpublic offering to China Mobile Communications Group Co. Ltd.
Bangladesh's Midland Bank Ltd. raised $6.7 million in its IPO during the month.