China will encourage commercial banks to replenish capital by issuing perpetual bonds, offering a new tool for lenders facing pressure to improve capital ratios amid a slowing economy and tightening regulation.
The country’s banks are under pressure to boost capital as new rules on shadow banking have curbed their ability to skirt capital adequacy requirements by shifting loans off balance sheet. A slowing economy and rising defaults are also expected to pressure banks’ capital ratios.
Bank of China, the country’s fourth-largest lender by assets, said in April that it planned to issue up to Rmb40bn ($5.8bn) in perpetual bonds by end-2020 to replenish tier-1 capital. A person close to the bank said on Wednesday that BoC was now stepping up preparations for the sale.