Recently, banks have pressed the "accelerator button" on the issuance of financial bonds. In just a few days, the Bank of Zhengzhou, the Bank of Nanjing, the Bank of Suzhou, the Bank of Hangzhou, and the Bank of Zhangjiagang successively issued announcements saying that they were allowed to issue financial bonds.

Data show that in August this year, the total amount of financial bonds issued by financial institutions reached 437.1 billion yuan, setting a new high for the year. Among them, commercial banks contributed the most, commercial banks issued 27 bonds in the month, with a total scale of 286.3 billion yuan, up 499.39% from the previous month, and the issuance scale accounted for more than 60%.

It is understood that before commercial banks issued financial bonds, they must obtain the administrative permission of the central bank and the approval of the banking and Insurance Regulatory Commission. The recently released Decision of the China Banking and Insurance Regulatory Commission on amending some administrative licensing regulations (hereinafter referred to as the "Decision") further optimizes the approval process of bank bond issuance.

Industry analysts believe that the release of the decision is conducive to the issuance of financial bonds, which will help stabilize the economy. This will promote banks to change the structure of liabilities, change the proportion of short-term liabilities is too high, it is expected that the follow-up financial bond issuance scale will further increase, the pace will be significantly accelerated.

Record high scale low interest rate

On September 26, the Bank of Zhengzhou issued the "Announcement on the issuance of financial Bonds approved by the People's Bank of China", saying that the bank recently received the People's Bank of China's "Decision to grant administrative license", agreeing to issue no more than 10 billion yuan of financial bonds in the national interbank bond market.

In the past few days, the Bank of Nanjing, the Bank of Suzhou, the Bank of Hangzhou, the Bank of Zhangjiagang, etc., have issued relevant announcements that have been approved to issue financial bonds. For a time, the industry's discussion of financial bonds rose.

According to the Administrative Measures on the Issuance of Financial Bonds in the National Inter-Bank Bond Market, financial bonds refer to securities issued by financial institutions legally established within the territory of the People's Republic of China in the national inter-bank bond market with principal and interest repayment as agreed. It is understood that in addition to the general financial bonds issued by the bank, there are also small and micro, rural, green, double and creative financial bonds to reflect the special financial support for specific areas.

In recent years, the bank financial bond market continues to expand, including state-owned large banks, joint-stock companies, urban commercial banks, rural commercial banks, foreign banks and other types of entities have issued financial bonds.

Since the second half of this year, the activity of financial bonds has continued to increase. Citic Securities Research Department analysis pointed out that after June 2022, financial bond issuance and net financing have rebounded significantly, reaching 1011.6 billion yuan and 585 billion yuan respectively in August, the highest level since this year.

Oriental Jincheng research analysis believes that the number of financial bonds issued in August continued to rise, and the scale of issuance increased significantly, mainly due to the accelerated pace of funds replenishment of state-owned large banks and joint-stock banks. In the month, a total of 101 financial bonds were issued, and 437.01 billion yuan, an increase of 9.78% and 133.42%, respectively, and the net financing amount was 267.670 billion yuan, and the issuance scale and net financing amount hit a new high this year.

Talking about the reasons for the increase in financial bonds issued by banks, Li Yelin, a postdoctoral researcher at the Research Institute of the Bank of China, said: "Under the background of the regulatory reduction of the one-year and five-year LPR, guiding banks to maintain stable growth in credit, the balance of RMB loans at the end of August was 208.28 trillion yuan, recovering the trend of year-on-year increase." Driven by credit, the increase in the scale of assets and liabilities has put forward higher requirements for the capital replenishment ability and efficiency of commercial banks. As one of the important external capital replenishment tools of commercial banks, the issuance of financial bonds is conducive to easing the capital replenishment pressure of banks, and also provides a boost for banks to increase long-term stable capital supply in the future."

Zhou Maohua, a macro researcher in the financial markets department of Everbright Bank, believes that this mainly reflects the rising financing demand of commercial banks. "Especially for some small and medium-sized banks with relatively narrow margin financing channels, for banks, integrating long-term funds through the issuance of financial bonds will help enhance the ability to release medium and long-term loans and better serve the real economy." Help to optimize the structure of assets and liabilities; At the same time, the current market liquidity remains reasonably sufficient and financing costs are relatively low, which is also a driving factor."

From the perspective of interest rates, the Eastern Jincheng Research report shows that the market liquidity is more abundant in August, and the interest rate of financial bond issuance is down from the previous month, and the issuance spread is narrowed. In August, the market liquidity was more abundant, the fund level continued to ease, and the MLF and LPR interest rates were lowered to promote the fund interest rate to remain low, but in the latter half of the year, the fund interest rate rose slightly under the influence of the MLF reduction and cross-month factors. The weighted average interest rate of financial bond issuance in the month was 2.81%, down 24BP from the previous month.

Sufficient liquidity of small and medium-sized banks competing layout

The issuance of financial bonds can not only provide capital supplement funds for commercial banks, but also provide a stable source of debt.

Looking to the future financial bond market, industry analysts believe that the market liquidity remains sufficient, the interest rate of financial bond issuance is low, and the capital supplementary issuance of small and medium-sized banks will speed up in the future.

On August 22, the People's Bank of China proposed at a symposium that major financial institutions, especially large state-owned banks, should strengthen macro thinking, give full play to their leading and pillar roles, and maintain the stability of total loan growth; We will increase lending to the real economy and do a better job of providing credit support to small and micro enterprises, green development, and scientific and technological innovation. We will ensure reasonable financing needs for real estate. It is necessary to increase financial support for key areas of the platform economy in accordance with law and compliance.

Oriental Jincheng expects that under the effect of economic repair and policy development, the superimposed LPR downward effect will appear, credit demand will be further repaired, and social finance data will continue to improve.

On September 2, Ruan Jianhong, director of the Survey and Statistics Department of the People's Bank of China, proposed that the People's Bank of China will continue to create a reasonable and ample liquidity environment in the future. We will further adjust our monetary policy across cycles, maintain steady and moderate growth of money and credit, and maintain reasonable and abundant liquidity to boost economic development.

Oriental Jincheng believes that the increase in fiscal expenditure will support market liquidity, and the central bank will carry out open market operations in a timely manner to protect liquidity, and liquidity will remain at a relatively adequate level.

In the context of social finance data will continue to improve and market liquidity remains abundant, the industry believes that the interest rate of financial bond issuance will run at a low level, and the capital supplementary issuance of small and medium-sized banks will speed up in the future.

"From the steady recovery of the domestic economy, the demand for real financing picks up; Some small and medium-sized banks in China are under great financing pressure, and market interest rates remain relatively low. It is expected that financial bond issuers will be strong, especially some small and medium-sized banks are relatively active." Zhou Maohua said.

In the army of financial debt issuers, the small and medium-sized banks dominated by city commercial banks are becoming the main force. Reporter statistics found that as of September 23, commercial banks issued a total of 184 bonds, of which 70 were issued by urban commercial banks, accounting for the highest proportion.

Faced with such a huge market, how investors choose to invest is the key.

From the perspective of the structure of bank financial debt holders, Industrial research pointed out in the analysis of bank financial debt investment strategy at the beginning of this year that the proportion of banks' on-sheet self-management is 56%, and funds, bank financial management and other assets account for a total of 44%.

In Li Yelin's view, on the one hand, compared with other comparable products, the credit foundation of the main body issuing bank financial bonds is good. For investors, bank financial bonds offer a higher relative investment value than other corporate bonds of the same maturity. On the other hand, bank financial bonds have certain income advantages. "Although the current interest rate of financial bonds is at a historically low range, there is no large spread compared with urban investment bonds, industrial bonds and medium-term notes of the same maturity, and financial bonds still have relative investment value due to their advantages in capital occupation and taxation."

With investment comes risk. Li Yelin pointed out: "At present, the risks that investment banks need to pay attention to are still interest rate risk and liquidity risk." As financial bond yields fall, the impact of interest rate fluctuations may increase. Secondary market activity may also constrain short-term trading demand from financial bond investors."

Zhou Maohua also reminded investors: "Due to the good qualifications of financial bond issuers, investment banks pay more attention to market risks and interest rate volatility risks."

It is worth mentioning that on September 23, the China Banking and Insurance Regulatory Commission issued the "Decision of the China Banking and Insurance Regulatory Commission on amending part of the administrative licensing regulations", which mainly mentioned two aspects of the approval matters for bank bond issuance: cancel the administrative license for the issuance of non-capital bonds, and report to the CBRC or the local provincial office within 10 days after the issuance of non-capital bonds; The issuance mechanism of the capital bond storage shelf has been clarified, and the relevant institutions can independently decide the specific instrument varieties, issuance time, batch and scale within the approved quota, and the institutions should complete the issuance within 24 months after approval.

Under the policy optimization, the scale and rhythm of bank financial bond issuance will be further improved in the future.

Wang Yifeng, chief analyst of the financial industry of Everbright Securities, believes that the issuance of non-capital financial bonds does not need to be approved by the Banking and Insurance Regulatory Commission, and the policy will greatly improve the efficiency of the review of financial bonds issued by financial institutions. The subsequent issuance of financial bonds will be approved by the central bank, and the annual balance ceiling management will be implemented. After the issuance system of financial bonds, it is expected to promote banks to change the debt structure, change the proportion of short-term liabilities is too high, and it is expected that the scale of financial bonds issuance will further increase and the rhythm will be significantly accelerated.

Li Yilin also predicted: "As the intensity of commercial banks' credit capital consumption has not weakened significantly in the short term, and the official implementation of the final plan of the Basel III has entered the countdown, China's bank capital supervision rules will be improved, capital supervision will continue to strengthen the situation, so the scale of bank financial bonds is expected to increase further in the future."