China will allow insurance companies to invest in perpetual bonds and Tier 2 capital bonds issued by certain banks as the government seeks to bolster the banking industry’s capital, the country’s top banking and insurance regulator said Thursday.
The move will help commercial banks improve their capital structure to enhance lending ability and capacity to fend off financial risks. It will also diversify insurance funds’ investment portfolios, the China Banking and Insurance Regulatory Commission said in a statement.
The CBIRC announcement came shortly after the central bank said it would set up a swap system to improve the liquidity of banks' perpetual bonds and encourage banks to replenish capital by issuing them.
Perpetual bonds have no maturity date. They are a common way for commercial banks worldwide to supplement Tier 1 capital. Earlier this month, Bank of China became the first Chinese commercial bank to win approval to sell as much as 40 billion yuan ($5.9 billion) of perpetual bonds.