A Chinese flag flies outside the People's Bank of China headquarters in Beijing. Chinese regulators yesterday unveiled fresh rules on the issuance of preferred shares by the nation's banks.
Dow Jones/Beijing
Chinese regulators unveiled fresh rules on the issuance of preferred shares by the nation's banks, in a bid to help them address tougher capital requirements in accord with global guidelines.
Chinese banks that currently meet the banking regulator's tier 1 or core-capital requirements will be allowed to issue preferred shares, said Deng Ge, spokesman of the China Securities Regulatory Commission, in a weekly briefing on Friday.
China rolled out general rules in March to let companies raise funds by selling preferred stock – a type of equity that combines elements of common stock and bonds, taking priority over common shares in the distribution of profits and in the event of liquidation.
Under the new rules, banks will need approval from the banking and securities regulators to issue preferred shares on the domestic stock markets.
"As the real economy continues to grow, there is an urgent need for China's commercial banks to replenish capital," Deng said.
Beijing aims to raise bank capital-adequacy ratios – a measure of a bank's equity capital and retained profits against its risk-weighted assets – to at least 11.5% for large banks and 10.5% for smaller ones by 2018. These goals are in line with global standards known as Basel III.
Under the new rules, banks can convert their preferred shares into common stock to boost their capital base if their core capital-adequacy ratio drops as low as 5.125%. They can also scrap dividend payments on preferred shares – but this will trigger restrictions on profit distributions on the common shares. The securities regulator didn't elaborate on the curbs.
The new rules also bar banks from issuing preferred shares that can be repurchased.
