Summary of Key Points
Over the past year, the banking sector has seen a continuous decline (the CSI Bank Index has fallen by nearly 20%), leading to a severe lack of motivation for bank convertible bonds to be converted into shares. Ziyin Convertible Bond (4.5 billion yuan) and Qingnong Convertible Bond (5 billion yuan) are about to mature, with conversion rates of less than 0.01%, meaning nearly one billion yuan is facing repayment pressure. The conversion rates of the other four existing bank convertible bonds are also generally low. Banks once relied on shareholders or strategic investors to convert bonds into shares to alleviate this pressure, but with current low stock prices and restrictions due to prices below book value, the ability to adjust conversion prices has been limited. Additionally, refinancing channels have tightened, resulting in a shrinking convertible bond market. In the future, banks will need to rely on internal profits or the issuance of perpetual bonds to replenish their capital.
I. Bank Stock Prices Have Plunged, Making Bond Conversions a Loss-making Venture
Bank stocks have performed poorly in the past year: the CSI Bank Index has dropped by nearly 20% since its peak in July 2025, with ten banks experiencing declines of over 20%, and some (such as Pudong Development Bank and Minsheng Bank) even losing more than 30%. This has directly affected the willingness to convert convertible bonds. Convertible bonds are essentially a combination of a bond and an option to buy shares at a predetermined price, and conversions only make sense when the conversion price is favorable. However, the current stock prices are far below the conversion prices:
- The current stock price of Zijin Bank is 2.46 yuan, while the conversion price is 3.55 yuan, resulting in a loss of 58% upon conversion (a conversion premium rate of 58%).
- The current stock price of Qingnong Rural Commercial Bank is 2.77 yuan, with a conversion price of 3.88 yuan, leading to a loss of over 50% upon conversion.
As a result, the conversion rates for Ziyin Convertible Bond and Qingnong Convertible Bond are only 0.0037% and 0.0013%, respectively, with almost no one willing to convert them into shares.
Why aren't the conversion prices lowered? Because bank stock prices have fallen below their book value (the price of the stock is less than its net assets), regulatory rules prohibit conversion prices from being set lower than this level, thus keeping the conversion premium rates high.
II. Nearly One Billion Yuan in Convertible Bonds Is About to Mature—Can Banks Afford Repayment?
Ziyin Convertible Bond will mature on July 22nd, and Qingnong Convertible Bond on August 22nd, totaling nearly one billion yuan. Do banks have the funds to repay? Two indicators can provide insight:
1. Net Profit: Zijin Bank earned 1.244 billion yuan last year and 429 million yuan in the first quarter of this year; Qingnong Rural Commercial Bank earned 3.128 billion yuan last year and 1.248 billion yuan in the first quarter of this year. Although the net profits are not sufficient for a one-time repayment, banks have daily cash flows and deposit reserves. Moreover, the top five shareholders are state-owned entities (for example, Zijin Bank's shareholder is Nanjing Zijin Investment Group, and Qingnong Rural Commercial Bank's shareholder is Qingdao Guoxin). They are likely to step in to help at critical times, so the repayment risk is not high. However, releasing such a large amount of cash poses a significant strain on smaller banks.
2. Capital Adequacy Ratio: Zijin Bank has a core tier one capital adequacy ratio of 10.59%, and Qingnong Rural Commercial Bank has a ratio of 10.43%, both meeting regulatory requirements, so there is no immediate concern about a capital shortfall.
III. The Previous “Life-saving Measure” of Shareholders/Strategic Investors Converting Bonds—Can It Still Be Used?
In the past, when convertible bonds matured, banks often relied on shareholders or strategic investors to convert them to avoid repayment issues:
- Before the maturity of Everbright Bank's convertible bonds, China Huarong increased its holdings to facilitate conversion and relieve pressure.
- Before the maturity of Pudong Development Bank's convertible bonds, China Mobile converted 56.31 million bonds to avoid repayment.
Currently, the shareholders of Zijin Bank and Qingnong Rural Commercial Bank are both state-owned entities (Nanjing Zijin Investment Group and Qingdao Guoxin, respectively), which have the financial capability to purchase and convert convertible bonds. This approach not only avoids the need for immediate cash out but also replenishes the bank's core capital, effectively increasing its equity. It is likely that this strategy will continue to be used.
IV. The Shrinking Bank Convertible Bond Market—Where Does Refinancing Lie?
Bank convertible bonds were once a significant part of the market, but no new issues have been made since 2022, leaving only about 88 billion yuan in outstanding bonds. Why aren't new bonds issued? Due to low stock prices, conversions are difficult, and issuing new bonds would be ineffective. To replenish capital, banks now have two options:
1. Internal Growth: Increase profits (e.g., by widening the interest margin or expanding intermediary services) to supplement core capital.
2. Issue Perpetual Bonds/Secondary Capital Bonds: These bonds do not require principal repayment and can be extended, providing a means to replenish both tier one and secondary capital.
Both private placements and convertible bond issuances are challenging: regulatory restrictions prevent low-price offerings when stock prices are below book value, and low conversion rates make new issues meaningless.
V. What Should Ordinary Investors Consider?
- For those holding convertible bonds: Conversions will result in losses; waiting for maturity to receive the principal plus interest is safer (banks are unlikely to default).
- For those holding bank stocks: The sector is unlikely to recover in the short term due to ongoing pressure on interest margins; those looking for quick profits should wait and see.
- For those interested in investing in convertible bonds: Conversions are difficult at present, so these bonds should be viewed more as stable investments, with little expectation of profit from price differences.
In summary, the “conversion window” for bank convertible bonds has currently closed, and the repayment pressures and capital replenishment needs of smaller banks will have to be addressed by state-owned shareholders and internal profits.
(Note: All data comes from the original news article. The analysis is based on current market conditions and historical cases and does not constitute investment advice.)