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[HONG KONG] Even as investment banks cut jobs across Asia, they're hiring staff to help China's lenders reinforce buffers against a financial crisis.
Difficulty finding bankers with Chinese language skills and relevant expertise is also forcing firms to "re-tool" existing employees with training, global headhunting firm Sheffield Haworth said.
There's never been more at stake after Chinese lenders raised a record US$62.8 billion selling US dollar bonds in 2016. Rating companies say they will need to sell more debt with equity characteristics to replenish capital this year.
"Banks are keen to hire financial institution specialists within their debt teams as many anticipate a potential wave of hybrid capital issuance," said William Bown, a Hong Kong-based executive director for global banking at Sheffield Haworth.
"Historically, the specialists with knowledge of bank capital have been flown in from markets like Europe or Australia. But banks increasingly have to make do with less, and ideally they want a single banker with knowledge of the product who is fluent in Mandarin."
Rising bad loans, falling profitability and tighter Basel III financial regulations are straining bank capital. Outstanding credit swelled to 264 per cent of gross domestic product in 2016, Bloomberg Intelligence estimates.
Moody's Investors Service and S&P Global Ratings said higher leverage is amplifying credit risk, while Fitch Ratings Ltd said poorer loan quality and shadow banking curbs will increase fundraising pressures.
"The credit story for Chinese banks is deteriorating, with more bad loans," said Mark Young, Singapore-based head of Asia-Pacific financial institutions at Fitch.
"Regulatory requirements in China are evolving and there is increased recognition of risks in off-balance-sheet products such as wealth management products and the need to top up capital as a result."
Last year, 59 per cent of fees for underwriting dollar bonds in Asia ex-Japan came from financial issuers, the most since 2003, New York-based Freeman & Co estimates.
US currency debt offerings by banks in the region climbed in 2016 to US$89.1 billion, 49 per cent of total bonds, Bloomberg-compiled data showed. The proportion was 61 per cent for China's lenders, the data showed.
Sales of US dollar debt for capital that complies with Basel III standards rose 8 per cent to US$12.7 billion in Asia ex-Japan, although there was a lull in such issuance from China after a binge in 2015.
Bigger banks will also have to start selling Total Loss-Absorbing Capacity debt, designed to make key lenders safer by ensuring they fund themselves with securities that can absorb losses in a crisis.
Underwriters are preparing for the bonanza. Mizuho Securities Asia Ltd hired Pramod Shenoi as head of debt capital markets for the financial institutions group for Asia-Pacific excluding Japan in December.
Natixis SA drafted in David So as an executive director for debt capital markets in November as part of its ambition to expand in that area, Alain Gallois, chief executive officer, corporate & investment banking for Asia-Pacific, said in an e-mailed response to questions.
"The timing of the expansion coincides with a period of increased clarity for TLAC implementation," he said.
"Such themes are recognised as particularly pertinent to financial institutions in the Asia-Pacific given the mix of global systemically important banks and high-profile borrowers."
Fitch said that the 15 Chinese commercial banks it rates have announced plans to raise the equivalent of US$65 billion in additional Tier 1 notes by the end of 2018. Chinese banks' nonperforming ratio rose to 1.76 per cent for the quarter ended Sept 30, 2016, the highest since 2009, according to China Banking Regulatory Commission data.
The central bank plans to encourage lenders to issue more US dollar offshore, according to people familiar with the matter, to curb declines in foreign currency reserves.
"We expect the Chinese banks to dominate and account for a large proportion of global additional Tier 1 issuance," said Mr Young of Fitch.