Mainland lenders are likely to head for offshore capital markets in growing numbers to raise subordinated debt to meet regulatory capital requirements and to fund expansion, says Philip Lau Cheuk-hang, senior vice-president and treasurer of Citic Ka Wah Bank.
With its well-developed market infrastructure and expertise, Hong Kong was ideally placed to benefit from such a trend, if regulatory approvals were granted, Mr Lau said.
Subordinated debt qualifies as Tier 2 regulatory capital for banks and is debt that is either unsecured or has a lower priority than that of another debt claim.
In the case of default, creditors with subordinated debt would not get paid until after senior debtholders are paid in full.
Mr Lau said Hong Kong banks, which were over-capitalised, did not require subordinated debt to the same degree as their counterparts on the mainland.
The capital adequacy ratio (CAR) of some small and medium-sized banks in Hong Kong stood at 15 to 16 per cent, he pointed out, well above the international guideline of 8 per cent. Mainland banks, however, had a much greater need to enhance their capital position, even though some had already met the banking regulator's minimum CAR requirement of 8 per cent.