20230419-招银国际-Asian_T2s__Lower_beta_plays_in_volatile_times_12页_926kb

Asian T2s (Second Tier Capital Instruments) are viewed as lower beta and yield pick-up trades compared to senior/debt and global peers, particularly in volatile times. The resilient performance of Asian T2s during volatility (e.g., SVB collapse) contrasts with European banks.

Key recommendations:

• ANZ 2.95 (07/22/30)
• KBANK 3.343 (10/02/31)
• SHINFN 3.34 (02/05/30)
• WSTP 4.322 (04/23/31)

These are chosen for higher return predictability and lower non-viability risk, supported by:

• Solid capital buffers (CET1 ratios well above 10%) and stable long-term capital adequacy.
• Stable long-term dividend policies.
• Strong historical record of T2 redemption on initial call dates.
• Exception: KBANK 3.343 is KBank's first T2.

Factors supporting Asian T2:

1. Asian central banks' slower interest rate hikes compared to the Fed mitigated T2 price volatility following SVB's failure.
2. The lower price volatility of Asian T2s is attributed to less severe bank runs like in SVB.
3. Compared to EU peers (similarly rated G-SIBs), Asian T2s generally exhibit lower price fluctuation and lower beta.

Return predictability:

• Asian T2s show higher return predictability than their EU counterparts.
• The predictability stems from banks' commitment to redeem T2s on first call dates.
• Non-calls in Asia are considered "rare" occurrences and exceptions (Woori Bank 2009, CMB Wing Lung Bank 2017), though negative reactions occurred initially.

Yield pick-up:

• The current YTC on recommended Asian T2s is attractive.
• For ANZ, WSTP, and SHINFN, the YTC is higher than comparable senior unsecured USD bond yields, though narrowing slightly from peaks in 2022.
• For KBANK, the YTC is higher than its comparable USD AT1 issue.

Future outlook:
Different regional factors will influence T2 supply:

• China: Expected faster loan growth (2023) might increase capital replenishment needs, but China banks may favor local-currency T2s due to higher USD funding costs.
• Australia: May continue issuing USD T2s but with lower refinancing demand in 2023 compared to 2022.

Regulatory regime:

• T2 is subordinated, ranks behind AT1 instruments, has a 5-year minimum tenor, and is generally amortized (contrary to some perpetuals/AT1s).
• Trigger for non-viability is outlined, but differs by APAC jurisdiction (Australia, China, Hong Kong, Singapore, South Korea, Thailand).
• Includes provisions like dividend stoppers (varies by country) and potential write-up upon redemption.

Table Summary: Selected Asian T2 picks are summarized with first call date, date, current YTC, and amount outstanding.

• KBANK 3.343 10/02/31: USD 8.00Bn at ~58% of YTC
• WSTP 4.322 04/23/31: USD 1.50Bn at ~65% of YTC
• ANZ 2.95 07/22/30: USD 1.25Bn at ~62% of YTC
• SHINFN 3.34 02/05/30: USD 0.50Bn at ~60% of YTC

Technical Note on Risk/Flexibility:

• T2s are callable, but their predictability reduces the likelihood of pre-refunding.