Recently, the regulatory authorities have actively introduced new policies to facilitate bank capital replenishment. It has become an important task of the current financial system to break the capital constraints faced by banks, ease the pressure on capital replenishment, and then unblock the transmission mechanism of monetary policy, so as to promote financial services for the real economy.
On February 20, the People's Bank of China launched the first phase of the 2019 Central Bank Bill Swap (CBS) operation, with the current operating volume of 1.5 billion yuan and the term of one year. This move aims to improve the liquidity of bank perpetual bonds and support banks to issue perpetual bonds to supplement capital.
In sorting out the policies issued over the past period, many of them made contributions to the supplementary capital of banks. In order to improve the liquidity of perpetual bonds, the People's Bank of China created the central bank's bill swap tool, and included the bank's perpetual bonds with an entity rating no less than AA into the eligible collateral range of the People's Bank of China's medium-term lending facility (MLF), targeted medium-term lending facility (TMLF), standing lending facility (SLF) and refinancing. The CBRC also announced that insurance institutions are allowed to invest in eligible bank tier two capital bonds and open-ended capital bonds. The executive meeting of the State Council held last week also made specific arrangements to support banks to replenish capital. First, for commercial banks, improve the efficiency of approval for the issuance of perpetual bonds, lower the access threshold for preferred shares, convertible bonds, etc., and allow eligible banks to issue multiple capital replenishment tools at the same time. Second, introduce long-term investors such as funds and annuities to participate in bank capital increase and share expansion, support financial subsidiaries of commercial banks to invest in bank capital supplement bonds, and encourage foreign financial institutions to participate in bond market transactions.
Breaking the capital constraints faced by banks has become an important focus of financial policy at present and in the future, which has its internal reasons. First of all, objectively speaking, the overall capital adequacy ratio of China's commercial banks has reached the standard, but the long-term pressure should not be underestimated. According to the latest data disclosed by the CBRC, as of the end of 2018, the core tier one capital adequacy ratio of China's commercial banks was 11.03%, the tier one capital adequacy ratio was 11.58%, and the overall capital adequacy ratio was 14.20%. All indicators met regulatory requirements. However, from a development perspective and an international perspective, Chinese banks do face some pressure on capital replenishment. First, after the issuance of the new asset management regulations last year, the off balance sheet assets of banks gradually returned to the balance sheet, which required corresponding capital replenishment; Second, although the capital adequacy ratio of most banks is far from the regulatory red line, some banks that will be newly included in the list of domestic systemically important financial institutions in the future need to meet higher regulatory requirements and face additional capital replenishment pressure; Third, at present, the capital adequacy ratio of the world's leading banks is between 15% and 20%, and there is a certain gap between the overall capital adequacy ratio of Chinese banks and it.
Secondly, the exogenous capital supplement is more direct, and the tools in the bank capital supplement toolbox in China are still insufficient. Banks can rely on endogenous channels to supplement capital, such as earnings retention, but the overall growth of bank profits slowed down, and the endogenous capital supplement did not "work" faster than the exogenous capital supplement. At present, the channels of external capital supplement that Chinese banks can rely on are not very rich. For example, before the relevant policies on perpetual bonds were clear, the main means of capital supplement for Chinese banks were listed financing, capital increase and share expansion, issuance of preferred shares, convertible bonds, secondary capital bonds, etc. In many countries, perpetual bonds have become a common way of capital replenishment.
Thirdly, breaking bank capital constraints is an important aspect of unblocking the transmission mechanism of monetary policy, which is conducive to a more accurate role of monetary policy and helps finance support the real economy. China's financial system is characterized by indirect financing, with banks in the dominant position, and the monetary policy of the central bank can be transmitted through banks. The central bank releases liquidity, but if banks cannot convert liquidity into credit to entities, the effect of the central bank's monetary policy will be greatly reduced. Therefore, relevant people of the Central Bank have repeatedly stressed on many occasions that monetary policy is not to ease the difficulty and high cost of financing, but to focus on the key link of banks to dredge the transmission mechanism of monetary policy. Inadequate capital will restrict banks' ability to lend. Therefore, breaking bank capital constraints is actually an important way to get through monetary policy transmission.
According to the information disclosed at the policy briefing of the State Council on February 19, the central bank will further optimize the design of terms, improve the trigger conditions and loss absorption mechanism of capital replenishment bonds, and explore the issuance of perpetual bonds and secondary capital bonds with equity swap terms. The finance and taxation department will soon clarify the tax treatment of perpetual bonds. It can be expected that with the introduction of more relevant policies in the future, the capital replenishment system of China's commercial banks will be more perfect, and the ability of the banking industry to support the real economy will also be further improved. (Zhang Mo)
