(Yicai Global) Aug. 18 -- Chinese banks have been issuing fewer perpetual bonds in the first half of this year after busy borrowing late last year but that might be due to seasonal factors, according to an insider.

Some 32 lenders issued bonds without maturity in the first six months of this year, according to industrial data.

In the second quarter, some CNY269.8 billion (USD41.6 billion) worth of perpetual bonds were issued, making up almost 90 percent of the total in the first half. After that, in the quarter that started in July, only two such types of notes have entered the market, totaling CNY11 billion (USD1.7 billion).

Small and medium-sized banks in China have become major issuers of perpetual bonds since 2020 with an increasing number of lenders and a decreasing size of single tranches after the wider sector started using the tool in 2019 to replenish its capital.

Part of the reason behind the hiatus may be seasonality. "The issuance [of perpetuals] has declined further since the third quarter, possibly impacted by seasonal factor since the fourth quarter of 2020 was a peak period of that year," a banking professional, who prefers to remain anonymous, told Yicai Global.

In 2020, most perps were issued in the second half. Those offered between October and December made up about one-third of the year's total sum.

Technical Factors

Uncertainties may cause such seasonal fluctuations, analyst at Dagong Global Credit Rating said in an interview with Yicai Global.

The cycle of bonds to supplement commercial banks' capital is generally long, said an analyst. Finishing the process from planning to issuance usually takes one to two years, or at least six months, the person added.

"Another possible reason behind the lenders' declining issuance of perpetual bonds is that the banks have an increasing number of alternative level-one capital replenishment instruments," said the analyst.

Moreover, investors may find smaller lenders' debt instruments risky. The issuances depend largely on investors' levels of risk tolerance, said the analyst.

Perps Forever

Still, perpetuals are likely to stay in fashion.

China's small and medium-sized banks will always be under big capital replenishment pressures amid business expansion and rising non-performing assets so they are expected to continue favoring perpetual bonds, Li Qian, analyst at Golden Credit Rating International, said to Yicai Global.

"Banks' enthusiasm to replenish capital through these conventional and emerging tools will not recede," Li concluded.

Editors: Tang Shihua, Emmi Laine, Xiao Yi