SHANGHAI- China notified its "Big Four" state lenders on Friday that they can issue loss-absorbing bonds, in a move that would help prevent the spread of any potential instability in its financial system.
The country's banking regulator said it had sent notices to Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China and China Construction Bank .
The four lenders are designated as global, systemically important banks by Chinese regulators and the Switzerland-based Financial Stability Board (FSB). They are all under pressure to meet total loss-absorbing capacity (TLAC) targets from 2025.
Loss-absorbing bonds, which are not counted in a bank's capital base, can be written off, or converted into common equities, when the bank enters the disposal phase, the China Banking and Insurance Regulatory Commission said.
The regulator urges issuers of such bonds to adopt a market-oriented pricing mechanism, to make them attractive to investors.
Meanwhile, issuers are banned from directly, or indirectly buying loss-absorbing bonds sold by themselves.
China published rules last year requiring that the "Big Four" banks hold a TLAC amount of at least 16% of risk-weighted assets starting Jan 1, 2025, and the bar will be further raised to 18% from Jan. 1, 2028.
(Reporting by Shanghai Newsroom; editing by Jason Neely & Simon Cameron-Moore)