Banks' Tier 2 and Perpetual Bond Issuance Exceeds 1.3 Trillion Yuan This Year: Major Banks Account for 60%, Smaller Banks Struggle to Follow
Nashnova编辑部
Chinese commercial banks have issued over ¥1.3 trillion in Tier-2 capital bonds and perpetual bonds this year, with the Big Six state lenders claiming more than 60%; squeezed margins, maturing legacy debt, and TLAC deadlines are driving a borrowing sprint that smaller banks — sitting on ¥250 billion in unused quotas — largely cannot join.
Who is doing all the issuing?
The Big Six state banks issued a combined ¥825 billion, over 60% of the market total. ICBC led at ¥290 billion, followed by Bank of China at ¥160 billion, CCB at ¥150 billion, and BoCom at ¥120 billion.
Postal Savings Bank and Agricultural Bank trailed at ¥70 billion and ¥35 billion respectively.
This means → the market is overwhelmingly a big-bank show — the remaining banks combined account for less than 40%.
Why so much issuance this year?
The most direct driver is maturing legacy debt: roughly ¥1.12 trillion in Tier-2 and perpetual bonds come due across 2026, with nearly ¥300 billion maturing in Q2 alone. Banks must roll over old instruments to maintain their capital-tool stock. In plain terms = a large share of new issuance is not expanding strength — it is refinancing existing obligations.
Internal capital generation is weakening in parallel. Net interest margin fell to a record low of 1.40% at end-Q1, squeezing profit retention. This means → banks' own earnings increasingly cannot keep pace with capital consumption, forcing heavier reliance on external funding.
For the five globally systemically important banks — ICBC, ABC, BOC, CCB, BoCom — TLAC requirements (total loss-absorbing capacity — the regulatory buffer a bank must hold to absorb losses in a worst-case scenario) add another layer of urgency.
Rates are at historic lows — how long does the window stay open?
Ample Q2 liquidity pushed coupon rates broadly below 2%. CCB and ICBC both priced July Tier-2 issues at 1.88%; BoCom at 1.89%.
This means → big banks are locking in historically cheap funding precisely when legacy maturities, the rate window, and TLAC pressure converge — a rare triple overlap that drove the Q2 issuance spike.
Dong Ximiao expects net issuance to narrow in H2 after the Q2 supply peak, with capital continuing to flow mainly toward the Big Six and top-tier joint-stock banks.
Why can't smaller banks issue despite holding quotas?
As of end-May, smaller banks held nearly ¥250 billion in approved but unused issuance quotas — yet the actual take-up rate was below 10%. By June 9, only Bank of Beijing and Bank of Ningbo had issued perpetual bonds, totaling ¥36 billion; rural commercial banks recorded zero issuance.
A structural mismatch is the core reason. Tier-2 and perpetual bonds can only replenish Additional Tier-1 and Tier-2 capital — the second and third layers of the capital stack. What smaller banks most urgently lack is Core Equity Tier-1 (CET1) — the hardest, bottom-line layer — which can only be rebuilt through retained earnings, equity injections, or shareholder support. In plain terms = the instrument these banks are allowed to issue cannot fix the capital layer they most desperately need.
The cost gap is equally prohibitive: Bank of Beijing, with nearly ¥5 trillion in assets, priced its perpetual bond at 2.1%; Xiangyin Rural Commercial Bank, with roughly ¥15 billion in assets, paid 4.2% — a spread of 210 basis points. This means → even with quota in hand, many smaller lenders simply cannot afford to borrow.
What does this bond rush really signal?
Over ¥1.3 trillion in issuance this year reflects more than funding demand — it exposes a race between banks' dwindling internal capital generation and accelerating capital consumption under compressed margins.
Big banks still have room to maneuver, leveraging credit-rating advantages and rock-bottom rates. Smaller banks face a far harder equation — CET1 gaps that bonds cannot fill, and interest-rate spreads that make issuance itself a burden.
This reflects a deepening divide within the banking system: the same task — replenishing capital — plays out under entirely different rules for large and small institutions.
Content is for reference only, not financial advice.