Smaller China banks bingeing on risky debt

Shanghai

LESS creditworthy Chinese banks are bingeing on the riskiest class of debt as a slowing economy and slumping stocks make it harder to meet standards for capital buffers.

Lenders other than the big five issued 85 billion yuan (S$18.8 billion) of Tier 2 securities in the third quarter after raising 91.7 billion yuan in the three months to June 30, the highest two quarters on record, according to data compiled by Bloomberg. The yield premium investors demand to own Bank of Beijing Co's 4.9 per cent 2026 bonds over similar-maturity government debt has widened four basis points since June 30 to 168.2 basis points.

Smaller Chinese banks, struggling with declining profits and rising corporate defaults, are under greater pressure than larger rivals to boost capital to comply with tighter Basel III rules designed to avoid another global financial meltdown. Such banks have been lending more aggressively to grab market share, a risky strategy in an economy forecast to grow at the slowest pace in more than two decades. The authorities in China halted a…