(Yicai Global) Sept. 12 -- The People's Bank of China carried out a CNY5 billion (USD705.7 million) central bank bill swap at a 0.25 percent rate yesterday to boost market liquidity and support perpetual bond issues by lenders seeking to replenish capital. It is the central bank's fourth CBS operation since the first on Jan. 24, bringing the total amount to CNY14 billion.
In the operation, primary open market dealers can swap perpetual bonds issued by qualified banks with central bank bills at low rates. The bills can be used to participate in the PBOC's collateral currency operations, boosting the liquidity of perpetual bonds held by the dealers.
Six lenders -- Bank of China, Agricultural Bank of China, Industrial and Commercial Bank, Minsheng Bank, Shanghai Pudong Development Bank and Bohai Bank -- have together issued CNY350 billion worth of perpetual bonds since the beginning of this year.
Interest rates on banks' perpetual bonds are falling. In January, Bank of China issued a five-year note with a 4.5 percent coupon. The five-year rate for bonds issued by Minsheng Bank and Hua Xia Bank in May and June was 4.85 percent. Since then the rate has dropped. Coupons on bonds from SPD Bank, ICBC and ABC (two issuances) were 4.73 percent, 4.45 percent, 4.39 percent, and 4.20 percent, respectively.
Bohai Bank issued CNY2 billion worth of perpetual bonds with a 4.75 percent coupon yesterday that was oversubscribed 2.36 times, becoming the first non-listed bank in China to issue such financial instruments.
Perpetual bonds and preferred stocks are among banks' Tier 1 Capital tools. In recent years, commercial banks have used them as financing devices more often than other measures. Their capital adequacy ratio reached 14.12 percent as of the end of August, an increase of 0.58 percentage point over the same period last year, the China Banking and Insurance Regulatory Commission said on Sept. 2.