Industrial and Commercial Bank of China to Issue $4.15 Billion in TLAC Bonds
Historic TLAC Issuance by Chinese Bank
Industrial and Commercial Bank of China has announced plans to issue 30 billion yuan ($4.15 billion) worth of total loss-absorbing capacity (TLAC) bonds on May 15, a groundbreaking move for the Chinese banking sector.
Increasing Pressure on State-Owned Lenders
China’s major state-owned banks are facing mounting pressure to raise capital as the demands to support the economy, property developers, and local government financing vehicles continue to grow.
Details of the Bond Issue
The world’s largest bank by assets revealed that it would issue 20 billion yuan in four-year bonds, redeemable after three years, and 10 billion yuan in six-year bonds with conditional redemption after five years. These details were outlined in a bond prospectus released on the Shanghai Clearing House’s website.
Utilization of Proceeds
ICBC stated that the proceeds from the bond issuance would be utilized to enhance the bank’s total loss-absorbing capacity. The issue period is set to run from Wednesday to Friday.
TLAC Bonds Importance
TLAC bonds, not included in a bank’s capital base, serve as a vital means for banks to be written off or converted into common equities during the disposal phase, ensuring financial stability.
Stricter Regulatory Rules Compliance
Designated as global systemically important banks, including ICBC, China’s top five state-owned banks are striving to meet stringent global regulatory standards on capital buffers. Fitch Ratings estimates a TLAC shortfall of 1.6 trillion yuan by January 2025 despite the banks planning to issue 440 billion yuan in TLAC bonds this year.
Conclusion
Industrial and Commercial Bank of China’s pioneering move in issuing TLAC bonds sets a significant precedent in the Chinese banking sector. With increasing pressure on state-owned lenders to raise capital and comply with global regulatory standards, this issuance marks a crucial step towards financial resilience and stability.