ICBC Leads Chinese Banks in Issuing Loss-Absorbing Capacity Bonds to Meet Regulatory Demands

In response to mounting pressures on major state-owned lenders in China, particularly as demands increase to support the economy, property developers, and local government financing vehicles, the Industrial and Commercial Bank of China (ICBC), the world’s largest bank by assets, has announced its intention to issue 30 billion yuan worth of total loss-absorbing capacity (TLAC) bonds. This marks the first issuance of such bonds by a Chinese bank. The bonds, which are not included in the bank’s capital base, can be written off or converted into common equity when the bank enters the disposal phase. Five of China’s largest state banks, including ICBC, are accelerating their efforts to satisfy stricter global regulatory requirements regarding capital buffers. By the end of next year, these banks have pledged to issue a combined total of 440 billion yuan worth of TLAC bonds. However, Fitch Ratings predicts that the five banks will still have a TLAC shortfall of 1.6 trillion yuan by January 2025. The ICBC’s TLAC bonds are scheduled to be issued between May 15 and May 17. The bank intends to utilize the proceeds to enhance its total loss-absorbing capacity, as designated global systemically important banks face stricter regulatory standards concerning capital buffers.