China's G-SIBs on track to meet minimum TLAC: Fitch

The five banks have issued about $110.12b in capital instruments yearly since 2019.

China’s global systemically important banks (G-SIBs) are on track to meet the minimum total loss-absorbing capacity (TLAC) requirements of 16% of risk-weighted assets (RWA) by January 2025 and 18% by January 2028, according to Fitch Ratings.

The estimated TLAC gap assumes an annual growth of 8% in RWA, 3% in net profit, and full inclusion of the deposit insurance fund (DIF) at 2.5% and 3.5% of RWA by 2025 and 2028, respectively.

The potential gap is lower than Fitch’s estimate in April due to the full inclusion of DIF, active capital, and TLAC debt issuance. This will increase if the DIF is excluded, or if more extensive stimulus measures result in higher RWA growth or lower profitability than Fitch’s expectations.

The ratings company expects ongoing TLAC issuance as the G-SIBs refinance maturing capital instruments, especially given the current profitability pressures, which it believes could be sustained whilst China faces economic challenges.

The five G-SIBs have issued about $110.12b in capital instruments annually since 2019. Four of the G-SIBs issued $247.8b of TLAC senior debt in 2024 alone, with another $35.79b in the pipeline.