The first this year! This bank announces: No redemption of Tier 2 capital bonds

Another small to medium-sized bank announces it will not redeem secondary capital bonds!

On March 25, Qinghai Mutual Aid Rural Commercial Bank announced on the China Bond Information Network that it will not exercise the redemption option for its 2021 First Series Secondary Capital Bonds (referred to as “21 Qinghai Mutual Aid Rural Commercial Bank Secondary 01”).

This is the first bank this year to announce it will not exercise the redemption option for secondary capital bonds.

Mutual Aid Rural Commercial Bank Announces: No Redemption

According to the issuance documents, “21 Qinghai Mutual Aid Rural Commercial Bank Secondary 01” was issued and listed in March 2021, with a total issuance of 60 million yuan, a 10-year term, with interest paid annually, and a conditional redemption right at the end of the fifth year.

The latest announcement states that the bank has chosen not to exercise the redemption option for this bond, with the non-redeemed portion bearing a 5% interest rate. Additionally, the bank has another 40 million yuan secondary capital bond still in the term, issued in July 2021, which will face a redemption decision at the end of July this year.

In July 2025, United Ratings issued a credit rating report maintaining the bank’s main credit rating at A with a stable outlook; the credit ratings for “21 Qinghai Mutual Aid Rural Commercial Bank Secondary 01” and “21 Qinghai Mutual Aid Rural Commercial Bank Secondary 02” remain at A-.

The report states that Mutual Aid Rural Commercial Bank has strong regional competitiveness, with its market share in deposits and loans ranking first locally. Its business focus is on supporting agriculture and small businesses. However, due to declining loan demand from local individual entrepreneurs and farmers, and increased industry competition, the bank’s personal loan business has decreased.

Financially, the report notes that influenced by the local industrial structure, the bank’s loan industry concentration is high. Since 2024, some clients have faced operational difficulties, exposing loan risks, leading to a decline in credit asset quality, and insufficient provisioning.

It is understood that Mutual Aid Rural Commercial Bank was established in 2014, originally as Mutual Aid Rural Credit Cooperative, with an initial registered capital of 143 million yuan. After multiple capital increases and share expansions, its capital increased to 308 million yuan. By the end of 2024, the bank’s assets exceeded 10 billion yuan.

Building a City-Level Unified Legal Person Rural Commercial Bank

It is worth noting that Qinghai Haidong City, where Mutual Aid Rural Commercial Bank is located, is actively preparing to establish a city-level unified legal person rural commercial bank.

Currently, Haidong City has five local legal person rural commercial banks: Hualong Rural Commercial Bank, Minhe Rural Commercial Bank, Haidong Rural Commercial Bank, Mutual Aid Rural Commercial Bank, and Xunhua Rural Commercial Bank.

In October last year, the project to establish a city-level unified legal person rural commercial bank in Haidong completed asset verification, valuation, and intermediary bidding, entering a substantive preparatory stage.

Subsequently, the Haidong municipal government formed a leadership team for the preparatory work by the end of October 2025. The project’s bidding agency was also changed from the five rural commercial banks to the Haidong Rural Commercial Bank Preparatory Group.

The Haidong City government’s 2026 work report, released in February this year, revealed that last year, the “establishment of a city-level unified legal person rural commercial bank made substantial progress and was removed from the high-risk list,” and that the “establishment and opening of the city-level unified legal person rural commercial bank will be completed in 2026.”

As of March 12, the Qinghai Financial Regulatory Bureau officially approved the establishment of Haidong Rural Commercial Bank Co., Ltd. (as the city-level unified legal entity), integrating all five county-level legal person rural commercial banks.

According to statistics from China Securities Journal, in recent years, eight provinces and regions—Sichuan, Xinjiang, Yunnan, Anhui, Guangxi, Guizhou, Hunan, and Qinghai—have successively promoted the establishment of city-level unified legal person rural commercial banks.

Luo Junkan, Chairman of Guangxi Rural Commercial United Bank, believes that promoting the formation of city-level rural commercial banks will be an important means to further deepen reforms of rural cooperative institutions at the city and county levels. The restructuring work will follow the principles of “easing into difficult tasks first, progressing steadily” and “pilot first, then expand.”

Significant Decrease in Non-Redemption Events

As an important tool for commercial banks to supplement secondary capital, secondary capital bonds have been widely issued in recent years, especially favored by non-listed small and medium-sized banks with limited capital replenishment channels.

Currently, the mainstream issuance term for bank secondary capital bonds is “5+5,” with principal amount decreasing by 20% annually over the five years before maturity. Therefore, banks generally choose to redeem early and reissue.

However, starting in 2017, cases of banks not redeeming maturing secondary capital bonds began to appear, with a notable increase in 2021 and 2022, attracting market attention. Statistics show that in 2021 and 2022, the scale of non-redemption of bank secondary capital bonds was approximately 11 billion yuan and 10.6 billion yuan, respectively.

Over the following three years, the number of non-exercise of redemption rights decreased year by year, and the scale of non-redemption also fell significantly. In 2023 and 2024, the non-redemption scale was about 6.25 billion yuan and 2.25 billion yuan, respectively, with only three cases in 2025.

Some banks also chose to delay exercising early redemption rights. Additionally, Tianjin Bank, Jiujiang Bank, and Anhui Taihe Rural Commercial Bank, after announcing they would not exercise redemption rights, subsequently redeemed their secondary bonds on schedule.

China Chengxin Securities analysis suggests that overall, under the background of strengthened financial risk supervision, accelerated industry reform, risk resolution, and mergers, the occurrence of non-redemption events for bank secondary bonds has significantly decreased.

Meanwhile, banks that previously did not exercise their rights have learned from experience, actively managing credit risk exposure, which has improved asset quality indicators. The resolution of past bad debts has also positively impacted profitability, offsetting the profit decline caused by narrowing interest spreads.

However, it should also be noted that core indicators such as profitability, asset quality, and capital adequacy of these banks remain below industry averages. Although most institutions are gradually emerging from the “historical quagmire,” they still face considerable operational pressures. Future efforts will need to focus on business transformation, risk control, and refined management to improve credit quality.