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The Industrial and Commercial Bank of China (ICBC), the nation's largest commercial bank, is poised to issue the first batch of subordinated bond valued 35 billion yuan (US$4.3 billion) after the ICBC bond underwriting group was set up on Friday.
"The issuing of this subordinated bond will further increase ICBC's capital adequacy ratio by 1 percent," said Wang Zhenjun, the spokesman of ICBC.
The capital adequacy ratio of ICBC had reached 9.12 percent by the end of June, a level well above the internationally accepted standard of 8 percent. And ICBC plans to issue no more than 100 billion yuan (US$12 billion) in subordinated bonds from 2005 to 2007 to replenish its capital base ahead of a planned initial public offering.
"Introducing commercial banks into bond market will help diversify bond products and improve the structure of the bond market," said Shen Bingxi, an official of the People's Bank of China, the nation's central bank.
Bank of China, China Construction Bank and some smaller banks have issued a total of 150 billion yuan (US$18 billion) in subordinate bonds in the past two years.
Proceeds from subordinate bonds which rank behind other liabilities before capital in terms of claims on bank assets are classified as non-core capital.
The first batch of subordinated bond consists of three types: 13 billion yuan (US$1.6 billion) of 10-year bond with fixed interest rate, 9 billion yuan (US$1.1 billion) of 10-year bond with floating interest rate and 13 billion yuan (US$1.6 billion) of 15-year bond with fixed interest rate.
"We are striving to provide more variety to satisfy the different demands of our customers," Wang Zhenjun added.
As the performance of subordinated bond is closely linked with the bank's credit, the issuing of a subordinated bond will also encourage the bank to improve its transparency and risk management scheme, said Shen Xiaoming, an official from the China Banking Regulatory Commission.
"Since the liquidity in the bond market will be ample in the second half of the year, ICBC's issuance of subordinated bonds has tiny influence on treasury bond yield," He Xin, an analyst with China Merchants Securities, told China Daily.
(China Daily August 15, 2005)
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