China’s banking and insurance regulator is considering allowing smaller banks to sell perpetual bonds to insurance companies, as part of efforts to help them replenish capital and contain financial risk.
The regulator is considering either adjusting or removing the minimum size limit for banks to sell perpetual bonds to insurance companies, a China Banking and Insurance Regulatory Commission (CBIRC) official said at a press briefing on Friday. Currently, insurance companies are only allowed to buy perpetual bonds issued by banks with more than 1 trillion yuan ($142.6 billion) of total assets, among other requirements, according to a January CBIRC document (link in Chinese). There were fewer than 30 such banks at the end of last year, according to data compiled by the China Banking Association, an industry group.
Policymakers began encouraging banks to use perpetual bonds to replenish their funds and meet minimum capital adequacy ratios at the end of last year, allowing the first issuance in January this year. The tool has been under discussion for years, but was rolled out this year as banks have come under increasing funding pressure in response to new regulations requiring them to move off-balance sheet assets onto their books in the ongoing campaign against illicit “shadow banking.”
Perpetual bonds are a security with no fixed maturity, so issuers can choose to pay interest indefinitely. Banks can sell them to replenish their core Tier 1 capital, as…