Mainland China, Australia banks to drive debt raising uptick after March decline

Asia-Pacific banks' aggregate debt issuance volumes could reverse the downturn seen in March as major lenders from mainland China and Australia gear up to meet regulatory capital requirements and refinance existing debt securities.

The region's banks issued $18.46 billion worth of debt securities in March, versus $26.23 billion in February and $23.57 billion in March 2023, according S&P Global Market Intelligence data, compiled on a best-efforts basis. Banks in mainland China and Australia accounted for over 70% of the aggregate debt capital raised in March.

The largest offering during the month was Agricultural Bank of China Ltd.'s $5.56 billion debt issue. Four billion-dollar offerings came from mainland Chinese banks, two from Australian lenders and one from a Japanese bank.

"We expect mainland Chinese banks to raise more from bond market" as they aim to replace debts with lower yields and issue total loss-absorbing capacity (TLAC) bonds to meet regulatory requirements, said Shujin Chen, head of China financial and property research at Jefferies.

Major mainland Chinese banks are expected to be active in the market as they need to fill shortfalls in their capacity to absorb losses.

"We expect the Chinese megabanks to raise capital amid elevated loan growth and pressure on profitability," Ming Tan, a banking analyst at S&P Global Ratings, said. All five mainland China-based banks, which are designated as global systemically important banks (G-SIBs), have announced their TLAC plans with issuance amounting to 440 billion yuan, Tan said.

The five G-SIBs are Industrial and Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China, Bank of China Ltd. and Bank of Communications Co. Ltd.

Active Australian banks

Australian banks are expected to remain active in the markets as they prepare for TLAC standards and finance upcoming redemptions.

"Upcoming maturity of term funding from the Reserve Bank of Australia (RBA), and scheduled calls on some of the additional Tier 1 issues has driven Australian banks' capital market activity in recent months," said Sharad Jain, an analyst at S&P Global Ratings.

Together with ANZ Group Holdings Ltd.'s $1.11 billion of preferred securities, Australian banks raised $4.56 billion of capital in debt and equity in March, Market Intelligence data shows.

The Term Funding Facility (TFF), set up by the RBA, was provided to banks to allow them to access cheap capital during the COVID-19 pandemic and allowed lenders to offer loans at lower interest rates. The TFF closed to new drawdowns of funding on June 30, 2021. Once the last of the funds are returned by June 30, 2024, Australian banks are likely to see their average cost of funds increase.

"Although the term funding from the central bank will be repaid in mid-2024, we expect Australian banks to remain active in these markets in line with their business-as-usual senior debt funding strategy as well as Tier 2 issuances to finance upcoming calls and preparation for the TLAC standards," Jain added.

Australia's four biggest banks — ANZ, Commonwealth Bank of Australia, Westpac Banking Corp. and National Australia Bank Ltd. — are required to raise their TLAC to 18.25% of risk-weighted assets by January 2026. Ratings expects collective annual issuance for these banks in each of the next two years to be about between A$15 billion and A$20 billion.