China’s largest bank to issue 1st-ever TLAC bonds
Industrial and Commercial Bank of China (ICBC), the world’s largest bank by assets, announced plans to issue 30 billion-yuan ($4.15 billion) in total loss-absorbing capacity (TLAC) bonds on May 15th, Reuters reported on Sunday.
This marks a historic move for Chinese banks, reflecting growing pressure on state-owned lenders to strengthen their capital positions.
The move comes amidst increasing demands on major Chinese banks to support the economy, property developers, and local government financing vehicles.
TLAC bonds act as a buffer, absorbing losses before they impact core capital in times of financial stress. These bonds can be written down or converted to equity, protecting depositors and creditors.
The ICBC issuance will consist of two tranches:
- 20 billion yuan in four-year bonds with a call option after three years.
- 10 billion yuan in six-year bonds with a call option after five years.
Proceeds will be used to improve ICBC’s overall loss-absorbing capacity. The issuance period runs from Wednesday to Friday of this week.
China’s five largest state-owned banks, including ICBC, are designated as global systemically important banks (GSIBs) by international regulators. This designation comes with stricter capital buffer requirements.
While this issuance is a step forward, Fitch Ratings estimates that the five major lenders will still face a TLAC shortfall of 1.6 trillion yuan by January 2025. Further issuance is likely necessary to meet these stricter requirements.
