Bank Preferred Shares Exit in Waves, Attractive Perpetual Bonds May Become the "Next Best Alternative"

Leading commercial bank China Merchants Bank also joins the wave of redeeming preferred shares.

Recently, China Merchants Bank announced that it has received no-objection approval from the China Banking and Insurance Regulatory Commission to redeem its domestic preferred stock “Zhaoyin You 1” in full on April 15, 2026. The preferred stock was issued privately in December 2017, with a redemption scale of 27.5 billion yuan. The redemption price is the face value plus accrued dividends, and all funds will come from the bank’s own resources.

This is the third bank this year to disclose preferred stock redemption, following China Everbright Bank and Ping An Bank. Besides these three, CITIC Bank’s 35 billion yuan “CITIC You 1” and Jiangsu Bank’s 10 billion yuan “Suyin You 1” will also enter redemption periods within the year. Huayuan Securities estimates that in 2026, the total preferred stock redemption scale for banks will reach 150 to 200 billion yuan, further increasing from 2025, with the redemption wave remaining at a peak.

Three banks have already redeemed preferred shares this year

On March 13, China Merchants Bank publicly announced its plan to fully redeem its 2017 privately issued domestic preferred stock “Zhaoyin You 1.” The preferred stock was issued in December 2017, with an issuance of 275 million shares raising 27.5 billion yuan. China Merchants Bank stated that the redemption date is scheduled for April 15, 2026, and it has received no-objection approval from the China Banking and Insurance Regulatory Commission. The bank will proceed with regulatory procedures, fulfill disclosure obligations, and distribute the corresponding preferred dividends accordingly.

The redemption scale of China Merchants Bank’s preferred stock ranks second among banks this year, behind Everbright Bank. On February 12, Everbright Bank announced the completion of its third preferred stock redemption and delisting. This preferred stock was issued in July 2019, with a scale of 35 billion yuan. Everbright Bank paid the full face value plus dividends accrued from January 1, 2016, to February 10, 2019, totaling 35.148 billion yuan.

In addition to China Merchants Bank and Everbright Bank, Ping An Bank also recently completed preferred stock redemption. On March 9, Ping An Bank successfully redeemed all of its privately issued “Pingyin You 01” preferred shares and officially delisted from the Shenzhen Stock Exchange on March 10. This redemption was executed based on the bank’s board resolution from August 22, 2025, and approval from the China Banking and Insurance Regulatory Commission, exercising the redemption right after five years of issuance. The redemption involved 200 million preferred shares at a price of 104.37 yuan per share (including dividends), totaling 20.874 billion yuan. Ping An Bank stated that this redemption used its own cash flow, had no significant impact on its financial position or operating results, and did not harm the interests of all shareholders.

The main reasons banks cite for redemption are cost reduction, efficiency improvement, and capital structure optimization. For example, the preferred stock “Zhaoyin You 1” issued by China Merchants Bank had a coupon rate of 4.81%. Under current market conditions, this cost is significantly higher than new capital instruments like perpetual bonds and Tier 2 bonds—2025 bank perpetual bonds have an average coupon rate of only 2.43%, and interest on perpetual bonds is tax-deductible, giving a clear financing cost advantage. Roughly calculating with a principal of 27.5 billion yuan and a coupon rate of 4.81%, full redemption could reduce annual fixed dividend payments by about 1.323 billion yuan, directly increasing net profit and enhancing returns for common shareholders.

Research analyst Zhang Pengyuan from Paipai.com noted that the recent concentrated preferred stock redemptions by banks are driven by several factors: First, in a low-interest-rate environment, banks can redeem high-yield preferred shares issued early on and replace them with lower-cost capital tools like perpetual bonds, easing net interest margin pressure. Second, preferred shares issued earlier are now reaching redemption periods, providing banks with operational windows. Third, some older preferred shares have diminished advantages in capital measurement, and redemption with “rollover upgrades” helps optimize capital structure.

Since last year, preferred stock redemption has become a trend among banks. In 2025, nine banks redeemed preferred shares, with seven banks redeeming a total of 111.8 billion yuan of domestic preferred stock—both the scale and the number of participating institutions hit record highs. Industrial Bank was the largest redeemer with 56 billion yuan; Beijing Bank and Nanjing Bank each redeemed 4.9 billion yuan, the smallest scale. Other institutions include Shanghai Bank (20 billion yuan), Ningbo Bank (10 billion yuan), Hangzhou Bank (10 billion yuan), and Changsha Bank (6 billion yuan).

In addition to the preferred shares redeemed by China Merchants Bank, Everbright Bank, and Ping An Bank, this year CITIC Bank’s 35 billion yuan “CITIC You 1” and Jiangsu Bank’s 10 billion yuan “Suyin You 1” will also enter redemption periods. Huayuan Securities estimates that in 2026, the preferred stock redemption scale for banks will reach 150 to 200 billion yuan, further increasing from 2025, with the redemption wave remaining at a high level.

Capital supplement tools are undergoing a “re-anchoring” shift

In the capital supplement toolbox of commercial banks, a silent but profound “re-anchoring” is underway. On one side, the once-main tool, preferred stock issuance, has fallen into a multi-year lull—since the issuance by Changsha Bank in 2020, there have been no new bank preferred stock issuances for six years. On the other side, perpetual bonds issued in 2025 reached a record high of 825 billion yuan, up nearly 20% year-over-year.

Cost comparisons reveal the core driver of this shift. Early (2014–2017) bank preferred stock issuances generally had high initial coupon rates of 5%–6%. Even as interest rates adjusted later, most remained above 4%. In contrast, new perpetual bonds issued in 2025 have coupon rates significantly lower, ranging from 2.09% to 3.8%. For example, Industrial Bank’s newly issued perpetual bonds have a rate of 2.09%, while its previously redeemed preferred shares had a minimum dividend rate of 3.7%. Notably, Bank of China and Shanghai Pudong Development Bank issued 30 billion yuan and 20 billion yuan of perpetual bonds in July 2025, with the first five-year coupon rates as low as 1.97% and 1.96%, respectively—cost advantages are substantial.

This migration from “preferred stock” to “perpetual bonds” is essentially a strategic choice by banks amid declining macro interest rates, stricter regulatory capital constraints, and profit pressures. Liao Zhiming, chief analyst at Huayuan Securities Fixed Income, pointed out that the interest rate spread between new and old tools exceeds 3 percentage points. For example, replacing 3.7%–5.5% preferred stock with 2.09% perpetual bonds can save about 1.28 billion yuan annually in interest expenses, directly boosting net profit. Similarly, Shanghai Bank’s redemption of its initial 5.2% “Shangyin You 1” (adjusted to 4.02%) and replacement with around 3.2% perpetual bonds could save approximately 164 million yuan per year.

The deeper significance of this replacement lies in “long-term locking of low costs.” Currently, market interest rates are at historic lows. CICC forecasts the 10-year government bond yield could drop to 1.2%–1.5%, and Huaxi Securities also expects room for further rate cuts. By issuing long-term perpetual bonds to replace high-yield existing instruments, banks can lock in low-cost funding for many years ahead, building a “financial buffer” against ongoing net interest margin compression.

Beyond direct financial benefits, perpetual bonds are also operationally more convenient. Compared to preferred stock, which requires dual approval from the China Securities Regulatory Commission and the China Banking and Insurance Regulatory Commission, perpetual bonds only need approval from the China Banking and Insurance Regulatory Commission, simplifying the process. The average issuance cycle shrinks from about 13 months for preferred stock to 3–6 months for perpetual bonds. Additionally, interest on perpetual bonds is tax-deductible, further reducing the banks’ effective financing costs.

After intensive preferred stock redemptions, banks face increased difficulty in allocating assets like wealth management products and insurance funds. According to Kaiyuan Securities, as of Q3 2025, preferred stocks among the top ten wealth management products had dividend yields ranging from 3.40% to 5.37%. Since they are allowed to use discounted cash flow models, their volatility is relatively low, and they currently account for over 90% of equity investments.

Many wealth management and asset management officials told reporters that it is difficult to find similar “substitutes” for preferred stocks. “Currently, the overall risk appetite for wealth management products is low, and they are unlikely to invest in risky assets. At present, there are no good substitutes for preferred stocks, and there is a risk of declining yields,” said an industry insider.