Jinzhou bank missed the opportunity as the first Chinese bank redeeming bank capital notes when U.S. bonds Tier I is available. Practically, banks have a better retail NPL ratio than corporate but Jinzhou’s retail NPO ratio is worse than the corporate. It simply indicates that the banking business does not look good.
Three years ago the bank postponed payments on the AT1s for about a year during the coming of new shareholders. An analyst at CreditSights, Karen Wu, said that there’s a high possibility that the issuer won’t redeem the bonds. She noted the poor financial performance of the bank and the limited funding avenues.
Another analyst also agreed that non-redemption could inflict greater systemic implication for the market.
This is because no Chinese bank has failed to call its AT1s first. Baoshang Bank had its onshore Tier 2 notes written down in 2019. However, that came after the bank proceeded to bankruptcy.
Chief economist for Asia Pacific at Natixis, Alicia Garcia Herrero, added that there’s dua performance in the nature of Chinese bank. Big banks perform better than the small ones. So it is obvious that smaller banks need the big banks’ support. It could be in the takeovers or China’s financial stability fund. The People’s Bank of China plans to launch a financial stability fund. This is to tackle the major systemic risk.
So the financial institutions and financial infrastructure operators will finance the fund. It could be through liquidity support from the central bank. In the last three year, Jizhou has had particular failures. The epitome is when the borrower turned into the first Asian bank missing AT1 offshore coupon payment.
At the same time, the capital ratio plunged below regulatory requirements. Its 5.14% core Tier 1 ratio was above the 5.125% slightly. Under Chinese rules, it should be converted into H-shares. Jinzhou faced restructuring afterwards. But it did not affect AT1s. Zhang Wei was the chairman controlling the bank. But currently, its 56.39% of it belongs to state-owned entities.
