Banks' Redemption of Preferred Shares This Year Will Reach 82.5 Billion Yuan

Staff Reporter Xiong Yue

Recently, China Merchants Bank announced that it plans to fully redeem 275 million shares of its non-publicly issued domestic preferred stock by April 15, 2026. The bank will redeem all these preferred shares at the price specified in the offering prospectus and distribute the corresponding dividends. The bank has received a reply from the China Banking and Insurance Regulatory Commission confirming no objections to the redemption.

According to the review, this is the third listed bank this year—after China Everbright Bank and Ping An Bank—to announce the redemption of preferred stock. Experts interviewed said that the successive redemptions by listed banks reflect a rational choice to proactively optimize capital structures and reduce financial costs in a declining interest rate environment.

Two banks have already redeemed preferred stock

The preferred stock “CMB Preferred 1” that China Merchants Bank plans to fully redeem was issued privately in December 2017, raising a total of 27.5 billion RMB. According to the bank’s previous offering prospectus, the preferred stock can be redeemed in whole or in part after five years from issuance, subject to regulatory approval and compliance with relevant requirements. The redemption price is the face value of the preferred stock plus any declared but unpaid dividends.

The announcement shows that the initial coupon rate for “CMB Preferred 1” was 4.81%. After a five-year adjustment cycle, starting December 18, 2022, the rate was adjusted to 2.68%.

Earlier this year, China Everbright Bank and Ping An Bank also redeemed their privately issued preferred stocks, “Everbright Preferred 3” and “Ping An Preferred 01,” with sizes of 35 billion RMB and 20 billion RMB respectively. Including China Merchants Bank’s planned 27.5 billion RMB redemption, the total preferred stock redeemed by listed banks this year will reach 82.5 billion RMB.

Since 2025, the redemption of preferred stock by listed banks has increased. Wind Info data shows that in 2025, several banks—including Changsha Bank, Nanjing Bank, Shanghai Bank, Hangzhou Bank, and Industrial Bank—delisted their domestic or overseas preferred stocks, with a noticeable increase in delistings compared to previous years. With almost no new supply, the overall scale of preferred stock issuance by listed banks has been shrinking.

Optimizing capital structure

Preferred stock is an important tool for commercial banks to supplement additional Tier 1 capital. Dividends are generally fixed or floating rate, and as “quasi-debt equity,” preferred stock dividends are paid out before after-tax profits. The maturity is usually perpetual, and banks typically have the right to redeem after five years.

“Since 2025, listed banks have been actively redeeming preferred stock, mainly because early-issue preferred stocks are reaching a concentrated redemption window,” said Yu Xiaoming, senior investment advisor at Jufeng Investment Consulting, to Securities Daily.

Xue Hongyan, a research associate at the Shanghai Commercial Bank, further explained to reporters that early-issue preferred stocks generally had higher coupon rates. In the current low-interest-rate environment, the financing costs of newly issued perpetual bonds and other capital instruments are significantly lower than those of existing preferred stocks. While preferred stocks can supplement capital, their higher dividend rates exert ongoing pressure on net profits. Therefore, when capital adequacy is sufficient, banks choose to redeem high-cost preferred stocks and replace them with lower-cost capital instruments.

Experts interviewed said that redeeming preferred stock can save on dividend costs and boost profits by replacing them with lower-cost capital tools. However, in the short term, this will directly reduce other Tier 1 capital, which may impact the capital adequacy ratio under static conditions.

“Bank redemptions are based on the premise that their capital adequacy levels are already relatively strong, and after redemption, key indicators still remain well above regulatory thresholds. By replacing high-cost preferred stock with lower-cost capital, the overall financing costs for banks decrease, which helps improve profitability and internal capital accumulation, laying a more solid foundation for future credit issuance and business development,” Xue Hongyan said.

Nankai University finance professor Tian Lihui believes that after redeeming high-interest preferred stock, the profits originally allocated to preferred shareholders will flow back to common shareholders, increasing earnings per share and distributable profits. Additionally, redeeming preferred stock can save interest expenses each year, and if dividend payout ratios remain unchanged, it effectively increases the dividend level for common shareholders. Essentially, banks are passing on the benefits of lower financing costs to common shareholders, which is a form of capital structure optimization and dividend release.

It is worth noting that preferred stocks have advantages such as high credit quality and stable coupons, making them important assets for public funds and bank wealth management products. Experts believe that the concentrated exit of preferred stocks will reduce the supply of high-yield, stable assets, putting pressure on asset reallocation for public funds and bank wealth management products.