Agricultural Bank Issues 800 Billion CNY TLAC Bonds This Year, Industry: Building an Additional Risk Cushion to Enhance Sustainable Operations Ability

August 4th, Agricultural Bank announced that it had completed the issuance of 2025-year TLAC (Total Loss-Absorbing Capacity) non-capital debt securities on August 1st, with a total amount of 500 billion CNY.

Among them, 3+1 year period 300 billion CNY, interest rate 1.85%; 5+1 year period 50 billion CNY, interest rate 1.93%; 10+1 year period 150 billion CNY, interest rate 2.15%.

The journalist noted that on June 26th, Agricultural Bank (601288) had issued 300 billion CNY TLAC debt. As of now, Agricultural Bank has issued TLAC debt securities totaling 800 billion CNY.

Shanghai Financial and Development Experimental Laboratory Chief Expert, Director Zeng Gang pointed out in an interview with the Daily Economic News reporter that globally systemic important banks issuing TLAC debt can help optimize capital structure. "TLAC debt securities are not regulatory capital, but they can be counted towards TLAC denominator, helping to optimize capital structure."

TLAC Debt Securities Have Priority over All Levels of Eligible Capital Tools

The journalist learned from Agricultural Bank that this round of TLAC non-capital debt securities has three term combinations and an issuance mechanism. The base amount is 200 billion CNY, with a supplementary issuance amount of 300 billion CNY, all three term types achieving supplementary issuance, resulting in a final issuance volume of 500 billion CNY, effectively enhancing Agricultural Bank's total loss-absorbing capacity.

This time, the issuance attracted various investors to participate actively, with the overall subscription scale reaching four times the base issue volume.

As for Agricultural Bank's TLAC debt issuance process in June, aside from state-owned large commercial banks, joint-stock banks, insurance companies, and other traditional investors, it also attracted a large number of securities, funds, trusts, foreign capital institutions, and marketized organizations to participate.

Apart from Agricultural Bank, recently Transportation Bank, China Bank (601988) have issued TLAC debt securities one after another. Among them, Transportation Bank (601328) issued 2025-year second-period TLAC debt securities on July 21st, with an issuance volume of 300 billion CNY.

On July 10th, China Bank completed the issuance of 2025-year TLAC debt securities (first period), with an issuance volume of 500 billion CNY and a face interest rate of 1.75%.

Transportation Bank's 2025-year first-period TLAC debt securities were issued on June 16th, with an issuance volume of 400 billion CNY.

The journalist learned that Transportation Bank's 2025-year first-period TLAC debt issuance attracted nearly 90 institutions to participate in investment, with subscription orders exceeding 630 billion CNY. The investors covered banks, funds, securities, insurance companies, and foreign capital institutions.

Zeng Gang pointed out that TLAC debt securities as a "bail-in" (internal distress mode) tool can be converted into equity or reduced in case of bank insolvency, enhancing the bank's loss-absorbing capacity.

The priority order for TLAC non-capital debt securities is lower than that of savings deposits and prior to all levels of eligible capital tools.

TLAC Risk Weighted Ratio Shall Not Be Less Than 18% Starting from 2028

According to the "Global Systemically Important Banks Total Loss-Absorbing Capacity Management Rules" implemented on December 1st, 2021, globally systemic important banks shall not have a total loss-absorbing capacity risk weighted ratio less than 16% starting from January 1st, 2025, and not less than 18% starting from January 1st, 2028.

Zeng Gang pointed out that globally systemic important banks issuing TLAC debt can help optimize capital structure. Firstly, it supplements capital; TLAC debt securities are not regulatory capital, but they can be counted towards TLAC denominator, helping to optimize capital structure. Secondly, it reduces financing costs; compared with ordinary bonds, TLAC debt securities generally enjoy certain regulatory recognition, which is beneficial for reducing overall financing costs. Thirdly, it diversifies funding channels; by providing new financing tools for banks, reducing dependence on traditional deposits and bonds, and preventing systemic risk. Fourthly, it reduces the risk of "too big to fail"; through enhancing loss-absorbing capacity, reducing the impact of bank insolvency on the financial system. Fifthly, it enhances market confidence; by presenting a pro-active attitude towards international regulatory standards, enhancing investor and market confidence.

According to requirements, TLAC debt securities should include write-down or conversion clauses; when globally systemic important banks enter the resolution stage, secondary capital tools are fully written down or converted into ordinary shares, the People's Bank of China and the Banking Regulatory Commission can force TLAC non-capital debt securities to be fully or partially written down or converted into ordinary shares.

"By issuing TLAC debt securities, globally systemic important banks have essentially built an additional risk cushion." Zeng Gang explained. In extreme cases, these debt securities can absorb losses through write-down or conversion, avoiding the impact of bank insolvency on the financial system.

This mechanism design not only protects depositors and priority creditors' interests but also provides banks with a new tool for self-rescue in crisis situations, fundamentally enhancing their sustainable operations ability.

Earlier, the central bank's report showed that China has five globally systemic important banks steadily pushing forward TLAC debt issuance to meet the TLAC benchmark requirements. In May 2024, Industrial Bank and China Bank each issued 400 billion CNY TLAC non-capital debt securities; in August 2024, Construction Bank and Agricultural Bank each issued 500 billion CNY TLAC non-capital debt securities.

Zeng Gang pointed out that different banks have different risk management, asset allocation, and business development strategies, with TLAC demand varying accordingly.