Chinese banks accelerate preferred share redemptions

Chinese commercial banks are undergoing a significant shift in capital management, characterized by a massive wave of preferred share redemptions and a surge in the issuance of perpetual bonds and secondary capital bonds.

Banks are aggressively redeeming high-cost preferred shares to reduce interest expenses and optimize capital structures. This trend is driven by a widening interest rate gap; while older preferred shares often carry dividends between 3.5% and 6.5%, new debt instruments are being issued at rates frequently below 3%. For example, redeeming high-dividend shares can significantly boost a bank's net profit by reducing rigid dividend outflows.

Simultaneously, the market for perpetual bonds and secondary capital bonds is expanding rapidly. In the first half of 2026, large and medium-sized banks issued approximately 926 billion yuan in these instruments. While large state-owned and joint-stock banks leverage low interest rates to lock in cheap long-term capital, smaller rural and city commercial banks are increasingly relying on capital increases and targeted share offerings to bolster their capital adequacy ratios, which have faced downward pressure due to narrowing net interest margins.