Research On The Financing Of Preferred Stock In Commercial Banks

Preference shares are financial instruments with relatively fixed income,limited shareholders' rights and double pay preference.Depending on the classification criteria,preference shares can be divided into cumulative preference shares and non-cumulative preferred shares,participating preferred shares and non-participating preferred shares and other forms.As the accounting attributes of preferred shares are between debt securities,non-repurchased preferred shares can be recognized as an equity instrument by accounting.In 2014,the CSRC promulgated the Pilot Measures on Preference Shares.Issuing entities such as commercial banks vied with each other to issue preferential shares issuance plans.As of now,the issuance of preference shares in China has become a bottleneck.The number of preference shares issuances dropped sharply in 2017.Commercial banks are an important part of the issuer of preference shares,and the purpose of the issuance of preference shares by commercial banks is to supplement the other tier-1 capital.Through the issuance of preferred shares,commercial banks can enhance their ability to absorb losses,meet capital supervision requirements and reduce financing costs.Due to regulatory requirements and independent choice,preference shares of commercial banks are non-cumulative,non-participating,redeemable,non-repurchased preferred shares.The harsh terms of issuance have laid a foundation for the issue of preference shares issuance by commercial banks.Bank of Communications is one of the four state-owned commercial banks in China.In March 2015,Bank of Communications issued a preferential share issuance plan and submitted the required information for issuance to the China Banking Regulatory Commission in the same month.In June 2015,the issuance of preferred shares by Bank of Communications was approved by China Banking Regulatory Commission.In June 2016,the issuance of preferred shares by Bank of Communications was approved by the CSRC,and the approval process wasofficially completed.Since March 2015,Bank of Communications has started the preparation for issuance,the preparation for issuance in September 2016 has basically been completed,and the CSRC of Bank of Communications has submitted a full set of materials such as the issuance report.The result of the offering price shows that a total of 40 qualified investors completed the purchase of preferred shares of Bank of Communications and finally decided to allocate a total of 38 investors for distribution.The preferred shares issued a total of 450 million preferred shares issued,the amount of funds raised 44,952,000,000 yuan.From the perspective of financing costs,due to the strong demand for preferred shares in the capital market,the nominal financing costs are lower.However,taking into account the excessive demand of preferred shares as a result of new financial instruments,the actual cost of financing is high.The financing costs borne by Bank of Communications mainly include interest-bearing costs,liquidity risk and dilution risk,missed investment opportunities and other costs.Preference shareholders have limited rights and greater risk exposure,which is the main reason for the high interest payment cost of preferred shares.After the issuance of the Preference Shares of Bank of Communications,the secondary market transfer was rather cool.The transfer of the top ten preferred stock shareholders in 2016 was all due to the relatively long investment period of investors and the low transfer demand.Preferential shares transfer mechanism is not perfect,the transfer cost is higher.The transfer of preferred shares shows that Bank of Communications Preferred Stock is less liquid.Through the case of Bank of Communications,this paper concludes that liquidity of preference shares of commercial banks in the issuance of preference shares is not enough,the phenomenon of preferred stock of mutual funds among commercial banks is serious,the issue cycle of preference shares of commercial banks is longer,the subject of preference shares issuance of commercial banks is narrower,Preferred stock clause appeal less than five issues.In response to the five major issues,this article gives feasible solutions from the regulatory authorities,sponsors and issuers respectively,and provides suggestions for relevant parties to perfect the issuance system of preference shares and promote the development of preferred stock market in commercial banks.