China’s financial oversight committee has given the go-ahead for commercial banks to fill out their capital reserves by issuing perpetual bonds – securities that promise to pay out interest as long as the creditor decides to hold the bond, offering lenders another route to raise funds in the midst of an economic slowdown, the Financial Times reports.
A meeting this week of the Financial Stability and Development Committee, which mediates China’s different financial regulators, discussed new ways to assist banks raise capital. It hopes to kickstart perpetual bond sales “as quickly as possible”, according to a statement.
Following a strict crackdown on off-balance sheet activity in the financial sector, Chinese banks have been left with fewer options to meet capital adequacy requirements, a problem made worse by the threat of rising defaults in coming quarters.
Some of China’s lenders are already gearing up to sell perpetual bonds. Bank of China, the country’s fourth largest lender by assets, said earlier this year that it plans to raise up to Rmb 40 billion ($5.8 billion) from the security by the end of 2020.