Japanese banks are preparing for a surge in issuance of hybrid bonds designed to strengthen regulatory capital, according to multiple reports. The banks’ targeted sales focus on Additional Tier 1 (AT1) bonds, a special category of debt that regulators treat as part of a bank’s capital base. AT1 bonds are widely regarded as among the riskier forms of bank funding because they can involve mechanisms that expose investors to loss in certain stress or resolution scenarios.
The reports indicate that major Japanese banks are likely to have their busiest fiscal-year period in more than a decade for issuing these instruments. The main purpose is to raise or replace capital to meet higher regulatory requirements. With Japan’s large lenders seeking funding channels that count toward capital ratios, issuance of hybrid bonds is expected to increase during the current year, with some coverage projecting a potential record level.
While the timing and exact volume can vary by bank and market conditions, the core points are consistent: Japanese lenders are turning to AT1-style hybrid debt to fund regulatory capital needs and are poised for heightened activity compared with recent years.
