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icbc revolutionizes chinas banking with trailblazing 55 billion tlac bonds 1955


ICBC Revolutionizes China's Banking with Trailblazing $5.5 Billion TLAC Bonds


Robert Tavares

April 9, 2024 - 06:37 am


ICBC Set to Pioneer Mammoth TLAC Bond Issuance Amid Capital Bolstering Efforts

In an unprecedented move within China's financial sector, the Industrial and Commercial Bank of China Ltd. (ICBC) is gearing up to launch a massive bond issuance worth up to 40 billion yuan ($5.5 billion). These bonds, known as total loss-absorbing capacity (TLAC) instruments, represent a first for the nation's state-owned lenders and signify a proactive measure to meet stringent global banking standards.

Impetus Behind the Historic Bond Sale

ICBC, the titan among China's banks in terms of assets, is in the final stages of preparation for this colossal bond sale in collaboration with esteemed underwriters such as Citic Securities Corp. and Haitong Securities Corp. Sources privy to the bank's plans have shed light on these developments under the veil of anonymity due to the sensitivity of the information.

The initiative by ICBC is largely in response to the modest gains in earnings it observed in the year 2023. This accompanied narrower net interest margins and an uptick in bad loans, all of which underscored the critical need for large financial institutions to enhance their capital reserves. These measures are vital to comply with global regulatory norms that dictate stringent capital requirements for banks of ICBC's stature.

Structure and Strategy of the TLAC Bond Issuance

The forthcoming TLAC bond issuance strategy paints a clear picture of ICBC's capital reinforcement roadmap. The Beijing-based powerhouse plans to release 20 billion yuan of these bonds with an option for redemption at the end of three years. Moreover, ICBC is considering a further 10 billion yuan issuance in bonds, this time with a redemption option post five years. However, if these bonds are not redeemed at these intervals, they will seamlessly transition into regular senior debt for an additional year.

Furthermore, responding to market appetite, there is potential for the issuance volume to escalate by an extra 10 billion yuan should demand prove robust. This potential increase in bond issuance volume illustrates the bank's flexibility and responsiveness to investor interest.

The Nature of TLAC Bonds and Investor Sentiment

TLAC bonds, which form the crux of this announcement, serve as advanced financial tools characterized as "bail-in" instruments. These bonds are designed to come into effect during a financial meltdown, absorbing losses only after other debt instruments, including tier-2 and additional tier-1 securities, have been exhausted. The intricate design of these instruments illustrates the meticulous contingency planning that globally systemically important banks like ICBC practice.

As ICBC's proposed debt issuance nears reality, the bank has not yet offered official comments on these plans. Nevertheless, the financial world is keenly observing as the sagas of state-owned banks in China play out. Attempts to propel profitability have been challenging in the recent past, with mandates to revitalize the economy and aid debt-burdened sectors such as real estate development and local governments being a priority.

Broader TLAC Bond Issuance Plans and Big Five's Capital Strategy

The scene is set for a significant financial maneuver as China's banking juggernauts, including ICBC, disclosed their intentions early this year regarding their TLAC bond issuance blueprints. These five titanic state-owned banks forecast the issuance of a staggering 440 billion yuan in TLAC instruments collectively.

In a solitary revelation, ICBC hinted at the prospect of issuing domestic TLAC debt instruments to the ceiling of 60 billion yuan. The sales on the docket for this month are but a fragment of the wider strategy, as ICBC anticipates further bond sales worth 20 billion yuan as early as June, though these subsequent issuances hang on the ever-fluctuating pendulum of market demand.

Insight from Fitch Ratings and Future Projections

Fitch Ratings, a preeminent analytical firm, bestowed estimates in a recent report, envisaging that the esteemed circle of China's globally systemically important banks, which includes industry stalwarts like China Construction Bank Corp., Agricultural Bank of China Ltd., Bank of China Ltd., and Bank of Communications Co. Ltd. alongside ICBC, could potentially issue approximately 1.6 trillion yuan in capital instruments and TLAC-eligible senior debt by January 2025. The projections climb even higher, foreseeing an issuance of around 6.2 trillion yuan by January 2028.

For the burgeoning market of Chinese TLAC debt, the primary investors are likely to consist of larger commercial banks, asset managers, wealth-management entities, and insurers. Such a diverse investor base indicates broad market confidence and the perceived robustness of TLAC debt as a financial instrument.

Regulatory Landscape and International Standards for Banks

International regulatory frameworks cast a long shadow over the banking industry, ensuring systemic stability and resilience. The Financial Stability Board (FSB), an international body tasked with promoting global financial stability, crafted the TLAC rules in 2015. These rules mandate that banks like ICBC possess a buffer of liabilities and instruments, essentially "bail-inable," that equate to no less than 16% of risk-weighted assets by January 1, 2025. This requirement scales up to 18% by the year 2028, indicating a progressive strengthening of banks' safeguarding measures against potential crises.

Such regulations articulate the foresight of global financial authorities, pushing banks to insulate themselves progressively and preemptively against financial shocks. ICBC's forthcoming TLAC bond issuance is a bellwether move, illustrating how seriously Chinese banks are taking these international prescriptions to fortify their fiscal defenses.


The impending TLAC bond issuance by ICBC is more than a financial undertaking; it's a symbol of adaptive evolution within China's banking sector. As the global economy continues to present new challenges, China's state-owned banks are not merely responding to the immediate pressures of profitability and liquidity; they are positioning themselves to be at the forefront of the global banking industry's commitment to stability and resilience.

As market analysts, investors, and the broader financial community await the final details of this issuance and subsequent moves by other Chinese banks, the vibrancy and robustness of China's financial institutions are under a microscope. With ICBC spearheading this new chapter with their TLAC bond issuance, the direction in which these winds blow could very well set the course for global banking trends in the years to come.

Original Source: Bloomberg L.P.

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