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Fitch: APAC Banks Likely to Remain Major AT1 Issuers in 2017
December 22, 2016 / 1:02 AM / a year ago

Fitch: APAC Banks Likely to Remain Major AT1 Issuers in 2017

(The following statement was released by the rating agency) SINGAPORE, December 21 (Fitch) Asian banks are likely to remain major issuers of Additional Tier 1 (AT1) instruments in 2017, as Chinese banks look to support rapid balance sheet growth and Indian banks step up their efforts to address capital shortages, says Fitch Ratings. Activity outside of these two large markets will be mostly driven by refinancing needs. Asia's market share in Fitch's AT1 tracker - which tracks total global issuance since 2012 - increased to 40% at end-September 2016, from 31% at end-September 2015. Asian banks were particularly active in the AT1 market in 3Q16, accounting for 63% of global issuance, mainly owing to large issuances by Chinese banks, totalling USD11.3bn, and Japanese banks, totalling USD5.4bn. Chinese banks remain the biggest global market participants. Fitch expects Asia to help drive global AT1 issuance again in 2017, with China likely to remain the largest global market participant. We are forecasting credit growth to exceed nominal GDP growth in China in 2017-2018, which, together with regulatory adjustments associated with off-balance-sheet wealth management activities, will need to be supported by extra capital. Fitch also believes Chinese banks will be put under pressure to raise external capital by deteriorating asset quality - reflecting the build-up of financial system leverage in recent years. The 15 commercial banks rated by Fitch have in total announced plans to issue CNY450bn (USD65bn) in capital by end-2018, and they could need to raise more than that. Indian banks are likely to become more active in the AT1 market in 2017, after issuing around USD2.8bn so far in 2016. Fitch estimates that they need around USD90bn in extra capital by March 2019 to support credit growth and meet steadily increasing regulatory requirements. Around one-third of this new capital is likely to be raised through AT1 issuance. Most of the rest of Asia's AT1 activity is likely to be driven by refinancing requirements, rather than balance sheet growth or regulatory pressure. We expect the three Japanese mega banks to be the largest market participants in the region, outside of China and India. Asian banks in 2016 issued most of their AT1 instruments in domestic markets, where the relative cost of funding has become more favourable. These local-currency instruments also allow for better matching of the banks' risk-weighted assets. Banks are likely to continue to favour domestic issuance in local currency next year, given the recent strength of the US dollar and the likelihood that the US Federal Reserve will raise interest rates further. The scope to rely on domestic markets for issuance varies by country. China's domestic market, for example, has so far proved deep enough to meet banks' requirements. However, we believe the Indian domestic market is unlikely to show the same sort of depth, and we have doubts that it will be able to absorb all of India's AT1 paper. We expect Indian banks to continue to favour domestic issuance in the short term - given the cost advantage - but some of the better-rated banks are likely to be encouraged to follow the example set by State Bank of India in 2016 and turn to the international market next year. Contact: Mark Young Managing Director, Financial Institutions +65 6796 7229 Fitch Ratings Singapore Pte Ltd. One Raffles Quay South Tower #22-11 Singapore 048583 Dan Martin Senior Analyst, Fitch Wire +65 6796 7232 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. 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