Monday Tidbits:wave of sub-debt supply from China -fear not!

In the recent weeks, the press (e.g. Bloomberg, China Securities Journal etc)has been increasingly talking about an impending boom in hybrid capitalissuance by Chinese banks. We decided to take a closer look at the driversbehind it, which instruments are in question and how much supply couldactually spill over into external markets.

    Regarding the drivers, there are two distinct trends that we would like tohighlight. Larger players in the Chinese banking system are more driven by theoverall desire to increase new business generation, while coping with therising Basel-III requirements and (for the big-4) still pending TLACimplementation. For the city and rural commercial banks, the trends are moredependent on the rising pressure from changes in Macro-PrudentialAssessment by the regulators and yet deteriorating asset quality. Hence thebanks in both camps face the dilemma of how to de-risk their RWAs and boostcapital