News
Chinese banks heed Tier 2 call
Bonds Supply rocketed in the interbank market in September – with more to comeBY CAROL CHANChinese banks are accelerating
their issuance of onshore Tier
2 bonds to replenish capital, as
a large amount of notes they
issued in 2014 and 2015 will start
to turn callable in 2019.
According to data from
China Central Depository &
Clearing, T2 bond issuance in
China’s interbank bond market
increased 224% year on year
in September to Rmb199.8bn
(US$28.8bn), bringing the total
for the first nine months to
Rmb300.8bn, up 12% from the
same period in 2017.
The jump is all the more
dramatic when compared with
China’s broader bond market.
Total bond issuance in the
interbank market rose 37% in
September to Rmb1.6trn and
1.7% to Rmb10.6trn in the first
nine months, according to CCDC.
Nicholas Zhu, a Moody’s vice
president and senior analyst,
expects the flood of onshore T
bond supply will continue inthe near term as banks need to
replenish capital given tighter
controls on investment in
shadow banking products and a
potential rise of bad loans as the
economy slows down.
“Raising extra capital through
the stock market is very difficult
now as the A-share market
underperforms, whereas the
bond market, in comparison,
still has room for more bankissuance,” said Zhu.
The analyst said a large amount
of T2 paper issued in 2014 and
2015 will start to turn callable in
2019 and issuers need to line up
funds to redeem these securities.
According to CCDC data,
Chinese lenders issued
Rmb356.8bn and Rmb269.8bn
T2 bonds in 2014 and 2015,
respectively, and most of these
are 10-year non-call five notes.“The market expects these T
bonds will be called. If issuers
decided not to call, that would
frustrate market expectations,
which I think issuers and
regulators would not want to see.
Moreover, some T2 bonds have
coupon step-up features if not
called,” he said.
Zhu noted that core Tier 1
capital – mainly equity – for
most publicly listed banks is
quite adequate, but that they
still need to beef up other capital
buckets through offerings of
Additional Tier 1 and T2 notes.
T2 issuers in September and
October included the big five
state-owned banks, national
joint-stock commercial lenders
like CHINA CITIC BANK and SHANGHAI
PUDONG DEVELOPMENT BANK, city
commercial lenders like
ZHONGYUAN BANK and ZHEJIANG
CHOUZHOU COMMERCIAL BANK, and
rural commercial lenders like
FUJIAN CHANGLE RURAL COMMERCIAL
BANK and SHANXI QINGXU RURAL
COMMERCIAL BANK.
The most striking name wasBangladesh stock support 06 Record Asian LBO loan 07 Philippine FIG 08
Aussie banks lose market share
Bonds Increased competition and lending slowdown reduce funding needsBY JOHN WEAVERSAustralian bank issuance is about
to pick up with three majors
coming out of blackout and
several subordinated notes due
to be refinanced, but longer-
term supply is on a downward
path as the sector grapples
with a housing market slump,
tighter regulations and non-bank
competition.
Non-bank lenders, which are
not subject to the Australian
Prudential Regulation Authority
standards, have benefited from
outrage over a series of domestic
banking scandals and stricter
lending regulations that targetthe country’s embattled banks.
Non-banks recorded year-
on-year housing credit growth
of 13% in August, against 4.8%
for banks, according to ANZ
Research, while the Australian
Bureau of Statistics reported
non-banks’ share of housing loan
approvals climbing to 8.18% from
6.85% in August 2017.
“Non-banks have taken
advantage of tighter bank
lending rules over the last couple
of years and we expect them to
continue taking market shares
as open banking, comprehensive
credit reporting and debt-
to-income limits come into
force,” said ANZ analyst DanielGradwell.
Open banking, which kicks in
next year in Australia, requires
banks to share the data they
hold about customers through
an application programming
interface (API). This will make
it much easier for customers
to switch their savings and/or
mortgages from current banks
to cheaper and more efficient
financial service competitors.
Banks are also facing
competition in the corporate
lending market from
the country’s immense
superannuation industry, which
had A$2.7trn (US$1.9trn) of
assets as of June.Rising interest rates, falling
property values and an ageing
population theoretically require
super funds to allocate more to
fixed-income products, including
corporate debt.
In a groundbreaking deal
last year AustralianSuper, the
country’s biggest industry super
fund, and fund manager IFM
Investors lent A$150m over 10
years to private manufacturing
giant Visy Industries to refinance
senior debt.
There was further growth last
week when AustralianSuper and
property super fund Cbus backed
a 10-year A$100m facility by IFM
Investors for Essendon Fields, an
airport and business park.
“There has been a significant
increase in the number of
super funds involved in loan
transactions and the volumes