Quick Take: Regulator Lifts Rules for Banks in Tapping Bond Market

Chinese banks, even those with a tainted record of misconduct, are now able to tap the bond market for funding more easily — a move intended to boost capital adequacy and guard against liquidity risks.

Previously, banks that had violated rules or engaged in improper internal management over the previous three years were not allowed to raise capital through issuing subordinated debts, financial bonds or other forms of debt.

These less-compliant banks now are able to issue these debts regardless of their record, the China Banking Regulatory Commission (CBRC) said.

But still, all banks will need to meet other regulatory requirements, including maintaining loan-loss provisions of at least 150%.

In case of default or bankruptcy, creditors who hold subordinated debt won’t get paid until senior debt holders are paid in full. The funds raised through issuing subordinated debt constitute part of the bank capital that makes up its required reserve.

Several banks have been scrambling for capital to meet regulatory requirement. Postal Savings Bank of China Co. Ltd. and China Merchants Bank Co. Ltd. announced plan to issue preferred stock in March, and Bank of Qingdao Co. Ltd. and Jilin Jiutai Rural Commercial Bank Co. Ltd. plan to issue bonds.

Contact reporter Dong Tongjian (tongjiandong@caixin.com)