write-down bonds to expand banking capital

1、<p>　　Write-down Bonds to Expand Banking Capital</p><p>　　The commercial banks in China are given new ways of supplementing the capital. After being allowed to issue the write-down capital instruments i

2、n the inter-banking market， the commercial banks that have gone public or are going to go public might issue the corporate bonds with write-down clauses （also known as “write-down bonds”） in the bond market of exchanges.

3、 </p><p>　　It is known that the write-down bond refers to the Tier-2 capital bond with the write-down function. It is a kind of Tier-2 capital instrument with the write-down function. It is the main subject

4、that the China Banking Regulatory Commission （CBRC） promoted in the year of 2013. Prior to that， several state-owned banks of China had expressed their plans to issue the Tier-2 capital instruments. </p><p>

5、　　Open the Exchangebased Bond Market </p><p>　　The China Securities Regulatory Commission （CSRC） and CBRC worked out a guideline， pointing out that the banks allowed to issue the write-down bonds include com

6、mercial banks listed in the stock exchanges in Shanghai and Shenzhen， domestic commercial banks going public in foreign stock exchanges， commercial banks that have submitted the plans of IPO in China. </p><p&g

7、t;　　This means that there are 18 banks， including Chongqing Bank and Anhui Merchant Bank which just went public one day before the rule came out， are allowed to issue the write-down bonds. </p><p>　　In addit

8、ion， the guideline also preserves the space for more bond issuers. If the CSRC changes the relevant rules about the scope of corporate bond issuers， other commercial banks that are qualified to issue bonds can apply to i

9、ssue the write-down bonds as well. </p><p>　　Previously， the commercial banks are allowed to issue the write-down bonds in the inter-banking market， but this market mainly consists of commercial banks. Issui

10、ng bonds to each other could increases the risks inside the system. And the mutual deduction cannot bring too much capital into the banks. </p><p>　　According to the 33rd clause of Temporary Management Rules

11、 for Commercial Banks， the commercial banks should deduce from their total regulatory capital the capital instruments of various tiers or capital investment that CBRC considers to be virtue capital. In addition， any self

12、-issued Tier-1 capital instruments and Tier-2 capital instruments directly or in- directly owned by the commercial banks should be removed from the regulatory capital as well. </p><p>　　Prof. Guo Tianyong at

13、 the Central University of Finance and Economics says that the banks’ issuing bonds in the securities market for the capital supplement is assisted by the multiple securities investors. Since the banks buy a small amount

14、， it is very efficient to supplement the capital. 　　Li Daxiao， chief economist at Yingda Securities， thinks it to be a proper option to supplement capital by issuing bonds at this moment. Now the stock price is too low，

15、 and the equity financing is not a cost</p><p>　　Some practitioners say that the banks with comparatively a smaller size are more likely to issue bonds in the Shanghai Stock Exchanges given the capacity of t

16、he securities exchange market. </p><p>　　The data from Central National Bonds Registration and Settlement Corporation tells that the bond trusteeship in the stock exchange sin Guangzhou and Shanghai amounted

17、 to RMB 765.089 billion， accounting for 3% of the total amount of bonds. The inter-banking bonds are still the protagonist of the bond market in China. </p><p>　　Relieve Banks of Capital Stress </p>&

18、lt;p>　　The first of 2013 was started with the implementation of the “Management Methods of Commercial Bank” as the stricter and large-size credit delivery applies great stress over the commercial banks. The capital ad

19、equacy ratio and the core capital adequacy ratio of listed banks mostly decreased. </p><p>　　The financial reports of Q3， 2013 showed that 7 listed banks saw their capital adequacy ratio decrease compared wi

20、th the number in the middle of 2013 and six banks saw the decrease of their core capital adequacy ratio. Among them， Nanjing Bank’s capital adequacy ratio and core capital adequacy ratio respectively dropped 1.46% and 0.

21、92% in September compared with that of June. This also made Nanjing Bank the champion in the decrease of capital adequacy ratio in all listed banks of China. </p><p>　　What’s corresponding is the fast increa

22、se of the growth of listed banks’assets. In the third quarter of 2013， Ningbo Bank， Ping’an Bank， China Merchant Bank and Industrial Bank all had the over 20% year-on-year growth in their assets. Ningbo Bank even saw a 3

23、3.5% increase in its assets. </p><p>　　The new version of the assets management rules stipulate the unqualified Tier-2 capital instruments commercial banks issued before this rule would be reduced 10% year b

24、y year as of January 1， 2013. From January 1， 2022， they will not be counted as the regulatory capital. According to the statistical data， by the end of 2012， the domestic banks have already issued RMB 900 billion of res

25、erve Tier 2 capital bonds. As those bonds do not comply to the Basel Accords III in the “clause about mandatory </p><p>　　Many experts believe that the new rule can somewhat relieve the commercial banks of t

26、he stress of capital supplement and reduce the stress they cause to the capital market when they re-finance. </p><p>　　Space for Innovation </p><p>　　The new rule also made it clear that “other

27、stipulations should be formulated and subject to by the CBRC and CSRC if commercial banks plan to issue the other types of corporate bonds for the capital supplement”. This is considered to be a measure of leaving the sp

28、ace for the commercial banks to issue other types of innovative capital instrument. </p><p>　　Experts believe that the preferred stocks might be “the other type of innovative capital instrument”. Recently， t

29、he pilot project of preferred stocks was placed under heavy scrutiny. Preferred stocks are considered to be a kind of capital cost embodying the national investment， but also a measure to prevent the national capital int

30、erfering into the normal operation of enterprises. The major banks have already made relevant preparatory plans. As expected by ex-perts， the issuance of preferred sto</p><p>　　Lian Ping， Chief Economist of

31、Bank of Communications， says that the commercial banks of China should timely and reasonably chose the core Tier-1， other Tier-1 and Tier-2 capital instruments for the financing in consideration of the market environment

32、， financing cost and efficiency. They should work hard to build a multi-dynamic and cross-region capital supplement system to optimize the categories of capital instruments and term management. This could reduce the fina

33、ncing cost of the stock market</p><p>　　In addition， in order to enhance the risk management of write-down bonds， the new rule also required the securities exchanges to apply different management systems ove

34、r the trade system of public offered write-down bonds according to the assets volume and credit level of the issuers. They also need to build the management system and improve the risk control measures suitable for the i

35、nvestors. </p><p>　　Meanwhile， the special property of the corporate bonds as the capital instrument， especially the write-down clause， always brings in some investment risks. The new rule stipulated that th

36、e issuers must fully disclose the special property and risky items of write-down bonds in the prospectus. And the writedown clauses and the event they might trigger must be printed on the notable place of the prospectus，