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Hybrid capital bond market outlook

Author: JiangSongRong From: www.yourpaper.net Posted: 2009-03-30 23:47:23 Read:
Abstract: The first domestic hybrid capital bonds issued in September 2006, marking the China Banking Regulatory innovation in the capital adequacy ratio in accordance with international practices taken important steps. This paper describes the intrinsic characteristics of hybrid capital bonds, that the demand from the market, the market environment and policy environment, the domestic hybrid capital bond market is bound to have a great development. Mainland China's first hybrid capital bonds in 2006, Industrial Bank Hybrid Capital Bonds "in the national inter-bank market at the end of September 2006 public offering, this issue is not only marks the increase in China's inter-bank market an important financial products, but also marks made an important step in China's banking sector capital adequacy ratio in accordance with international practice in supervisory positions in the new aspects of U. Hybrid capital bonds in the financial markets as well as global financial markets in the next few years, will play an important role.
Hybrid capital bonds
(A) the definition of hybrid capital bonds and international experience
The definition of hybrid capital bonds from the prevailing international banking Basel, Basel capital quality and the ability to compensate for the loss, the commercial banks' capital is divided into Tier two capital and three capital, including two The capital can be divided into low secondary capital and secondary capital. Hybrid capital bonds (hybrid capital instruments) are two high capital two capital.
Hybrid capital instruments, including a series of tools that have both equity capital and debt characteristics, specific areas of different countries in the world, but as a high secondary capital (upper tier 2 capital) are included in the supplementary capital, should be consistent with the Basel relevant provisions: hybrid capital instruments should be unsecured, subordinate and actually paid up in full; can not be redeemed by the holder of the initiative; without the prior consent of the regulatory authorities, and was not allowed to redemption; must be used for the loss-sharing without cease trading at the same time; should be allowed to defer the payment of interest when the profitability of the banking sector is insufficient to pay the capital instruments will bear the responsibility for the payment of interest and can not be a permanent reduction or elimination.
Hybrid capital bonds from countries operating practices, accounting is generally treated as a liability account transactions are regarded as fixed income securities. Therefore, hybrid capital bonds with double bonds and capital property.
Hybrid capital bonds in the international financial markets have been more mature development experience, such as the UK's perpetual subordinated debt (perpetual subordinated debt), South Korea's hybrid capital securities (hybrid securities). In recent years, due to the capital replenishment pressure and other reasons, hybrid capital instruments in the Asia-Pacific region in the ascendant, China's Taiwan and Hong Kong has a number of financial institutions have issued hybrid capital instruments.
(B) the first phase of the Chinese mainland mixed capital bonds Profile
Of the first phase of the issuance of hybrid capital bonds under the framework of Basel from the beginning, with reference to the experience of mature financial markets to explore. 2004, regulators and some commercial banks to carry out relevant research on hybrid capital instruments, in December 2005, the CBRC issued the "Notice on commercial banks to issue hybrid capital bonds add supplementary capital, which allows qualified commercial The bank issued hybrid capital bonds, these banks can meet certain specified conditions, the hybrid capital bonds are included in the supplementary capital. In September 2006, the People's Bank of China released 11 announcement, make specific norms for commercial banks to issue hybrid capital bonds in the inter-bank market behavior. Shortly after the Industrial Bank in accordance with the regulatory norms in the national inter-bank market successfully issued the first branch of hybrid capital bonds, issue a total of 4 billion yuan, a term of 15 years (approved by the CBRC issuer redeemable after 10 years).
Hybrid capital bonds is the most prominent feature of the repayment of the debt by a certain amount of interest on deferred terms of sequencing and the suspension of the right to claim compensation arrangements with certain capital property: (1) Interest on deferred terms when the financial of the issuer prior to maturity of the bonds year core capital adequacy ratio of less than 4%, the issuer has the right to elect to defer the payment of interest, surplus reserves and undistributed profits and negative, and the payment of cash dividends to shareholders within 12 months, the issuer must be postponed payment of interest; (2) in order of the repayment of debt on the bonds, hybrid capital bond order of the repayment of debt principal and interest in the issuer's long-term subordinated debt, prior to the shareholders of the issuer; (3) when the issuer is unable to pay the debt service order hybrid debt before debt or reimburse hybrid capital bonds will result in the insolvency of the order of the former's debt, investors should be suspended for the right to claim compensation, the Issuer can postpone payment of interest not constitute a breach of contract; (4) if the issuer's deferred payment of this funds or interest, must obtain the prior approval of the banking supervision department.
II hybrid capital bond market outlook
(A) as an important tool for supplementary capital, hybrid capital bonds issued in China's financial markets demand
The high-speed development of China's banking sector in recent years led many commercial banks capital repeatedly stretched, rely solely on the profits accumulated difficult to keep up with the growth rate of the risk assets, the need to improve the capital adequacy ratio of subsidiary capital; Chinese commercial banks return on equity (ROE) much higher than the hybrid debt issuance costs, even if the capital adequacy of banks actually through the issuance of hybrid capital bonds to raise the rate of return on equity; With the gradual promotion of the new Basel capital increasingly stringent regulatory requirements, such as market risk capital provision, etc., so that the commercial banks more necessary to broaden the channels for capital replenishment; hybrid capital bonds the main issue will be further expanded in the future, such as insurance companies and other financial institutions, may launch hybrid capital bonds. (B) hybrid capital bonds with a larger investment demand
China's bond market, there are two flaws: the scarcity of long-term variety, limited circulation;, high credit on the inter-bank market, the high proportion of low-yielding varieties (government bonds and quasi-sovereign debt). And hybrid capital bonds with longer maturity, higher yields, has a large demand for investment. 2006 Industrial Bank hybrid capital bonds ", for example, fixed-rate issuance at interest rates 4.94% the floating rate varieties for the one-year time deposit rates Gali difference 182bp, respectively, compared with the same period in financial bonds high 150bp and 1OObp of investors a better risk-reward. Therefore, although there are still some policy restrictions (such as insurance companies have not yet been approved investment of hybrid capital bonds) and misunderstandings (some investors is still a lack of understanding on the hybrid capital bonds), but the first phase of hybrid capital bonds still showing purchase enthusiastically situation. The investment institutions of hybrid capital bonds mainly banking financial institutions, but international investment in the main view of the hybrid capital bonds, future investment entities may be extended to institutions such as insurance companies, social security funds, pension funds, housing provident fund.
(C) the sustained and healthy development of China's financial sector and the bond market provides a good basis for hybrid capital bond market
In recent years China's financial industry, especially the reform and restructuring of the banking sector enhanced the stability of the banking system, coupled with the sustained and healthy development of China's economy, commercial banks operating environment is relatively stable hybrid capital bonds in 10-20 years, the likelihood of solvency risk is very small.
The inter-bank bond market continue to grow and develop, more and more different risk preferences, different capital background institutions involved in market investments, market liquidity is getting better and better. At the same time, the focus on continuous disclosure and open market oversight mechanisms matures, hybrid capital bonds from the outset, with a relatively healthy soil. Such as hybrid capital bonds the duration of the issuer should disclose financial information on a quarterly basis, hybrid capital bonds issued to take public offering, the issuer should bond interest and other debt repayment of the principal and interest of public disclosure of the capital adequacy ratio; hybrid capital bonds public issue and should be directed to issue the credit rating, the duration of the hybrid capital bonds, credit rating agencies should be regular and occasional track ratings on the hybrid capital bonds, to fulfill the debt of major events affecting the issuer credit rating agencies It should also provide timely follow-up ratings report.
(D) a favorable policy environment and regulatory environment is a strong guarantee for the development of hybrid capital debt markets
After the establishment of the China Banking Regulatory Commission, to comprehensively strengthen the regulatory risks of commercial banks, by means of on-site and off-site inspection, to keep abreast of the commercial bank's risk profile.
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