Experts: China's $44B in Special Bonds This Year Boosts Bank Risk Capacity

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The planned issuance of 300 billion yuan (approximately $43.5 billion) in special government bonds this year is expected to significantly ease operational pressures for large state-owned banks, according to industry analysts.

This year’s dedicated treasury bonds will serve to replenish the capital reserves of major state-owned financial institutions, especially as their net interest margins shrink and profit growth slows. These initiatives are designed to improve their capital adequacy ratios, bolster risk management capabilities, and expand their lending potential. Such measures will enable these banks to better utilize their resources, support economic development, and promote growth stability, experts indicated.

According to recent government announcements, China will issue 1.3 trillion yuan (around $188.3 billion) of ultra-long-term special treasury bonds aimed at fostering investment and consumption. Additionally, 300 billion yuan of ordinary special government bonds will be allocated to bolster the capital of large state-owned commercial banks this year.

This 300 billion yuan capital infusion could potentially drive asset growth by approximately 4 trillion yuan, enhancing these banks’ ability to issue direct credit and pursue external mergers and acquisitions. Such measures are expected to provide substantial support for the real economy and reduce financial sector risks, according to projections from a leading Chinese financial research firm.

Last year, four of China’s six major state-owned banks received capital injections totalling 520 billion yuan. The upcoming 300 billion yuan boost is expected to be distributed among the remaining two large banks—Agricultural Bank of China and Industrial and Commercial Bank of China—resulting in a higher average capital injection per institution, partly due to larger scale sizes.

The four banks that benefited last year include Bank of China, Bank of Communications, China Construction Bank, and Postal Savings Bank of China. This year’s injections will go to Agricultural Bank and ICBC. All six are classified as domestic systemically important banks (D-SIB). Additionally, ABC, BOC, BOCOM, CCB, and ICBC are designated as global systemically important banks (G-SIBs), which obligate them to maintain higher capital standards. Following a reclassification last year, ICBC’s additional capital requirements rose to 2 percent.

Currently, the minimum common equity tier 1 (CET1) ratio required for ICBC stands at 9.5 percent, while ABC, BOC, and CCB are required to maintain at least 9 percent, and BOCOM at 8.5 percent. As of the end of the third quarter last year, ABC’s CET1 ratio was 11.16 percent, and ICBC’s was 13.57 percent—down from the previous year’s 11.42 percent and 14.1 percent, respectively.

The capital injections are expected to raise the CET1 ratios of these two primary banks by an average of 0.6 percentage points. This increase is somewhat lower than the roughly 1 percentage point gain experienced by the other four banks last year. Experts emphasize that injecting capital into state-owned banks is a crucial strategy for reinforcing their financial strength, supporting economic growth, mitigating systemic risks, and ensuring stable dividend distributions.