Asia-Pacific bank capital raises hit 4-month high on TLAC demand in China

Asia-Pacific banks' debt issuance surged to a four-month high in February, thanks to mainland Chinese lenders' multibillion-dollar bond sales.

Banks in the region raised $25.01 billion via debt securities in February, up from $20.88 billion in February 2023 and $19.03 billion in January 2024, according to data compiled by S&P Global Market Intelligence on a best-efforts basis. Bonds issued by three major mainland Chinese banks — China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. — accounted for over 60% of the debt capital the region's banks raised during the month.

Chinese lenders, particularly the top five designated as global systemically important banks (G-SIBs), are bolstering capital reserves to meet regulatory requirements, Maggie Yee, director for investment consulting at Lighthouse Canton, told Market Intelligence.

China's banking regulator allows lenders to issue total loss-absorbing capacity (TLAC) bonds to prevent financial instability. Chinese G-SIBs must hold a TLAC of at least 16% of risk-weighted assets by Jan. 1, 2025, and 18% by Jan. 1, 2028. "Hence, we can expect further significant [TLAC] bond issues from Chinese banks in 2024," Yee said.

More to come

Bonds issued by the mainland Chinese banks were denominated in yuan, with proceeds allocated to augment their Tier 2 capital. The aggregate debt figures covered in the analysis include bonds, senior debt and preferred securities.

Major mainland Chinese banks are likely to remain active in the markets as they prepare to meet the deadlines to meet TLAC requirements. Bank of China, for instance, plans to sell up to 150 billion yuan of TLAC bonds in both domestic and overseas markets, Reuters reported Jan. 29, citing a bank filing.

S&P Global Ratings initially estimated the five G-SIBs would have a shortfall in their TLAC of up to 2.5 trillion yuan. It said in a March 7 report that the figure can be much lower, partially due to the country's realignment of capital rules with the Basel III framework.

Ratings said three of the G-SIBs — Industrial and Commercial Bank of China Ltd., Agricultural Bank of China and Bank of China — have announced plans to collectively issue 260 billion yuan of TLAC noncapital bonds. China Construction Bank has yet to unveil its TLAC issuance plan, the rating agency said.

In addition, Japanese companies Mizuho Financial Group Inc. and Sumitomo Mitsui Financial Group Inc. raised $1.50 billion and $1 billion, respectively, by issuing nonconvertible debt in February. Singapore's DBS Group Holdings Ltd. raised $1.08 billion in debt.

– Download a spreadsheet with data featured in the story. – Read our recent story about the outlook for M&A activities in China in 2024.

IPOs, follow-on offerings

The region's banks raised $1.96 billion via equity instruments, up from $691 million a year ago, Market Intelligence data showed. The February aggregate was also higher than January's when banks issued $400 million of equity instruments.

Four banks from Thailand, India and Bangladesh listed their shares in February, raising a total of $421.7 million in proceeds. The banks are Thai Credit Bank PCL, India's Jana Small Finance Bank Ltd. and Capital Small Finance Bank Ltd., and Bangladesh's NRBC Bank PLC.

Benchmark equity indexes in Asian nations such as India and Bangladesh reached all-time highs in 2024, mirroring gains in US stocks amid expectations of Federal Reserve interest rate cuts. Inflation has eased in these economies, said Ankit Agrawal, director of private markets at Lighthouse Canton.

But private market investment remains subdued compared to its 2021 peak, and valuations of unlisted companies have yet to rebound. "Consequently, a lot of IPOs have found strong investor demand and the companies have also found it easier to get attractive multiples through an IPO [as] against raising [funds] through a private round," Agrawal said.

IPO activity in India is also expected to remain strong in 2024 as companies look to take advantage of the country's robust economic growth, young population and the government's increased focus on digitalization. Meanwhile, IPO activity in Japan is set to gain momentum in 2024, while IPO activity in mainland China may remain slow.

As of March 27, US$1 was equivalent to 7.23 Chinese yuan.