What Is a Financial Institution Bond?

Financial bonds refer to bonds issued by banks and other financial institutions. The term of financial bonds is generally 3 to 5 years, and its interest rate is slightly higher than the level of time deposit interest rates during the same period. Because financial issuers of financial bonds are financial institutions, their credit ratings are relatively high, mostly credit bonds. ^[1]

Financial bond

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The issuance of China's financial bonds began during the Beiyang Government period. Later, during the Kuomintang government period, it also issued "financial bonds", "financial long-term bonds" and "financial short-term bonds". The issuance of financial bonds after the founding of New China began in 1982. That year, China International Trust and Investment Corporation was the first to issue foreign financial bonds on the Tokyo Stock Market in Japan.

To promote the diversification of financial assets,

New China Finance

At the same time, the source of funds for commercial banks also plays a role in expanding the size of credit funds. There are certain differences in behavior and functions between financial claims and deposits.

(1) The purpose of raising funds is to absorb deposits in a certain sense to comprehensively expand the total source of funds of banks, while issuing bonds focuses on increasing long-term sources of funds and meeting the needs of specific purposes.

(2) Different fund-raising mechanisms are absorbing deposits on a regular and unlimited basis, while the issuance of financial bonds is centralized and limited. In the deposit market, commercial banks are largely passive. The size of deposits depends on the wishes of depositors, so the deposit market is a buyer's market. The initiative to issue financial bonds is in the hands of banks, so it belongs to the seller's market and is the bank's "active debt".

(3) The efficiency of financing is different. Because the interest rate of financial bonds is higher than the interest rate of deposits, it has a strong appeal to customers. Therefore, the efficiency of financing is generally higher than that of deposits.

(4) Stability of funds raised Different financial bonds generally have a clear repayment period, so the stability of the funds is strong; the term of the deposit has greater flexibility, and even fixed deposits can be withdrawn in advance under certain conditions. , So the stability of funds is poor.

(5) Liquidity of funds Different financial bonds are generally anonymous, with extensive secondary market circulation and transfer, and strong liquidity. Deposits are generally registered. Once the funds are converted into deposits, the debt-debt relationship is fixed between the bank and the customer, so the liquidity of the funds is poor.

(6) The reserve ratio affected by deposit absorption is not affected by the funds obtained from financial bonds.

According to different standards, financial bonds can be divided into many types. The most common classifications are the following two:

(1) According to the payment method of interest, financial bonds can be divided into interest-bearing financial bonds and discounted financial bonds. If a financial bond has multiple coupons and the issuer pays interest on a regular basis, it is called an interest-bearing financial bond; if the financial bond is issued at a discount below par value, the principal and interest will be repaid at par and the interest is issued The difference between the price and the face value is called a discount bond. For example, a discounted financial bond with a face value of 1,000 yuan and a maturity of 1 year issuance price is 900 yuan, and is paid to investors 1,000 yuan at the maturity of 1 year, then the interest income is 100 yuan, and the actual annual interest rate is 11.11% .

According to common practice abroad, interest income from discounted financial bonds is taxed and cannot be traded on a stock exchange.

(2) According to the issuing conditions, financial bonds can be divided into ordinary financial bonds and progressive interest financial bonds. Ordinary financial bonds are issued at face value, and the principal and interest are paid once at maturity, and the maturities are generally 1 year, 2 years, and 3 years. Ordinary financial bonds are similar to bank time deposits, but with higher interest rates. Progressive interest The interest rate of financial bonds is not fixed. It has different interest rates in different time periods and is higher year by year. That is to say, the interest rate of the bond is progressive with the increase of the bond maturity, such as a face value of 1,000 yuan and a maturity of 5 The annual financial bonds have an interest rate of 9% in the first year, 10% in the second year, 11% in the third year, 12% in the fourth year, and 13% in the fifth year. Investors can go to the bank to pay at any time between the first year and the fifth year, and get the prescribed interest.

In addition, financial bonds can be divided into short-term bonds, medium-term bonds and long-term bonds according to the length of the term, like corporate bonds; divided into registered bonds and bearer bonds according to whether they are registered; divided into credit bonds and guaranteed bonds according to the guarantee situation; Whether it can be redeemed in advance is divided into pre-redeemable bonds and non-pre-redeemable bonds; it is divided into fixed-rate bonds, floating-rate bonds, and progressive-rate bonds according to whether the coupon rate of the bonds has changed; Bonds with options, bonds without options, etc.

Japanese bonds

Financial bonds were born in Japan. They are bonds produced under Japan's specific financial system. China introduced financial bonds from the 1980s, and Korea also introduced financial bonds in the previous period.

In Japan's bond system, from the perspective of the nature of the issuing entity, it is roughly divided into three categories: government bonds (including national bonds, local bonds and local guarantee bonds), financial bonds, and communal bonds (that is, corporate bonds). Among them, the main issuers of financial bonds are: Japan Industrial Bank, Japan Long-term Credit Bank, Japan Bond Credit Bank, Central Bank of Commerce and Industry, Central Bank of Agriculture and Forestry, Bank of Tokyo, National Federation of Credit Banks, etc. These institutions in Japan's financial system Although China is a "non-governmental professional financial institution", it has a strong government color. According to the objective requirements of its economic development, the Japanese government has continuously given strong support to industries and enterprises that need to be developed in order to improve its business and competitiveness, thereby establishing stable funding supply channels for different support objects.

Japan's financial bonds are different from the country's corporate bonds (community bonds) and follow different laws and regulations. Even in terms of financial bonds, financial bonds issued by different issuing entities are subject to different laws and regulations. Therefore, financial bonds are a special kind of bonds and are not theoretically general.

China bonds

The issuance of financial bonds in China began in 1985. There have been three types of financial bonds issued:

(1) In 1985, in order to solve the problem of insufficient credit funds of state-owned commercial banks, Industrial and Commercial Bank of China, Agricultural Bank of China, and other non-bank financial institutions were approved to issue financial bonds to the public to issue special loans and support some products for social institutions. Urgently needed and economically beneficial construction projects have to be cleaned up to promote their rapid completion and production. At the same time, the issuance of financial bonds should be implemented in accordance with the principle of income within limits. That is, according to the actual needs of special loans, it should be issued within the approved amount to prevent the funds raised from losing money due to higher interest rates. Such financial bonds continued until 1992, when more than 20 billion yuan were issued, and they have never been issued again. The characteristics of this kind of financial bonds are that, from the perspective of issuance, they are similar to government bonds, in order to implement national economic policies and complete the financing tasks undertaken by the state fund management institutions, rather than to make more profits for the financial institutions themselves. However, from the perspective of the issuance method, it is similar to corporate bonds. It does not issue prescriptive targets or political mobilization to all regions, and relies entirely on the characteristics of financial bonds to go public.

(2) In 1994, three policy banks, China Development Bank, China Exim Bank, and Agricultural Development Bank of China, were successively established. The capital and credit funds of these three policy banks began to be disbursed by the state finance, but they were not fully met due to financial difficulties. For the capital and credit needs of these three banks, the State Council approved that they can issue special financial bonds to financial institutions in the interbank bond market. By the end of 2002, these three banks had issued a total of 1.5299 trillion yuan of such financial bonds.

(3) In 1997 and 1998, in order to solve the problem of securities repurchase, the People's Bank of China approved 14 financial institutions to issue 16 financial bonds successively, with a total size of 5.6 billion yuan. These financial institutions include Huaxia Securities Co., Ltd., Cathay Securities Co., Ltd., China Southern Securities Co., Ltd., Guangdong Development Bank, Hainan Development Bank, Beijing Jinghua Trust and Investment Corporation, ZTE Trust and Investment Corporation, Hainan Huitong International Trust and Investment Corporation, Hainan SEG International Trust Investment companies, BOC Trust Investment Company, Hainan International Leasing Company, Xinjiang International Leasing Company, Guangdong International Trust and Investment Company Shenzhen Branch, Beijing Stone Finance Company, etc.