MNI POLICY: Perps A Good Way For Banks To Recapitalize: PBOC

     BEIJING (MNI) - China will continue to push bank recapitalization through

multiple channels, including the use of perpetual debt, in order to meet demands

of credit expansion and the recognition of banks' off-balance sheet assets,

officials from the People's Bank of China and the China Banking and Insurance

Regulatory Commission told reporters Tuesday.

     Banks' capital must be replaced as the banking sector is growing rapidly

and stricter regulations clarifying off-balance sheet assets are coming into

force, Pan Gongsheng, deputy governor of the PBOC and head of the State

Administration of Foreign Exchange, said, stressing that perpetual debt is a

good tool to achieve this purpose.

     "The overall capital of Chinese banks is comparatively adequate ... but the

tier one capital adequacy ratio is just 0.6%, lower than that of some big

international banks," Pan said, 

     "The launch of perpetual debt will help optimize capital structures and

enhance banks' capacity of risks resistance and credit providence," he added.

     China's banks will recapitalize via new bond products and facilities, while

regulators will expand the range of end-investors, encouraging foreign

institutions to invest in relevant bonds or by allowing qualified Chinese banks

to issue bonds in overseas market, Pan noted.

     --NOT QE

     Sun Guofeng, the head of the PBOC's monetary policy department said the

central bank will conduct the first bill swap under the new facility soon,

although volume will not be very big according to market demand and the PBOC

will charge users.

     According to Sun, the bill swap is to guide and develop the market,

boosting liquidity and helping the market play the lead role.

     The PBOC has set no targets for perpetual bond issuance, Pan said, as he

again noted the new bill swap facility is not quantitative easing, as it

involves no liquidity injection and the debt remains on the balance sheet of

banks, who also get the coupon payments.

--MNI Beijing Bureau; +86 (10) 8532 5998; email: marissa.wang@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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