Research On The Financing Effect And Potential Risk Of Perpetual Bonds Of Small And Medium-sized Banks

Micro,small,and medium-sized enterprises have been hit hard,an important part of China’s economy,under the COVID-19 pandemic.In order to speed up economic recovery,as small and medium-sized banks serving small,medium and micro enterprises for a long time,they actively respond to the call of the state and constantly increase the credit supply,resulting in their capital gradually in a deficit state.With the increase of regulatory pressure,the problem of capital replenishment of small and medium-sized banks in China has been further highlighted.As an innovative other tier 1 capital supplement tool,perpetual debt has brought a lot of convenience to the capital supplement of small and medium-sized banks.In November 2020,the "20 Chengdu Bank perpetual Bonds" was successfully issued,and The Bank of Chengdu became the pioneer of issuing perpetual bonds by small and medium-sized banks in China.In this context,it is of great significance to study the financing effect and potential risks of Chengdu Bank perpetual bonds to further optimize the use of small and medium-sized banks’ perpetual bonds for capital "blood replenishment".This paper uses the case study method,focusing on "20 Chengdu Bank perpetual bonds",in the first place,its issuance plan and motivation are studied.Then,this paper makes an in-depth analysis of the financing effect of Chengdu Bank from the perspectives of short-term market performance and the financial comparison effect under the two traditional financing methods.In terms of short-term market response,this paper finds that the issuance of perpetual bonds of Chengdu Bank may have a temporary positive effect on the stock price of Chengdu Bank due to the advance disclosure of the announcement information,but then the market sentiment has reversed.It can be speculated that the issuance conditions of Chengdu Bank have limited attraction to market investors.In terms of financial comparison effect,the paper analyzes the influence of three financing methods of perpetual bonds,ordinary stocks and ordinary bonds on a series of indicators of Chengdu Bank,and finds that the perpetual bonds of Chengdu Bank have advantages in saving financing costs,stabilizing the control of the issuer and enhancing the ability to resist risks.Secondly,this paper on the basis of internal risk source and external risk source to Chengdu bank the sustainable debt financing risk is divided into four categories,respectively for Chengdu bank operating conditions their own internal factors or will cause reputation risk,write down loss risk and by external positive policy and market environment or will cause interest rate risk and transactional flow risk.Then,this paper focuses on the analysis of the potential risks of the perpetual bonds in the Bank of Chengdu,and finds that the perpetual bonds in Chengdu mainly has reputation risk and transaction flow risk,while the write-down loss risk and interest rate risk are small.Finally,this paper puts forward six suggestions on how to use the small and medium-sized banks’ perpetual bond financing to grasp the favorable opportunity of issuance,reduce the cost,reasonably design the issuing terms of small and medium-sized banks,and innovate the varieties of small and medium-sized banks,in order to promote the steady development of the perpetual bond market of small and medium-sized banks.