On August 25, Qingdao Rural Commercial Bank (002958.SZ) announced that its convertible bond, the Qingnong Bond, would be delisted from the Shenzhen Stock Exchange starting August 25, 2026, marking the complete exit of this financial instrument from the market. The Qingnong Bond, issued on August 25, 2020, had a total issuance of 50 million units, raising 5 billion yuan with a six-year term. The conversion period began on March 1, 2021, and by the final conversion date of August 24, 2026, only 6,468 bonds had been converted into shares, totaling a mere 150,100 shares of the bank's stock. The remaining 49.9935 million bonds, which were not converted by maturity, were redeemed for a total payout of 5.399 billion yuan (including tax and final interest), settled in full on August 25.

This leaves only four bank convertible bonds in circulation: Changyin Bond, Chongyin Bond, Xingye Bond, and Shangyin Bond, with a combined balance of approximately 79 billion yuan. None of these mature in 2026, with the nearest maturity being the Shangyin Bond in January 2027. Despite attempts to reach Qingdao Rural Commercial Bank for comment, no response was received by the time of publication.

The conversion rate for the Qingnong Bond was a stark 0.01%, meaning that essentially all of the 5 billion yuan issuance was redeemed for cash rather than converted into equity. According to the bank's announcement, within five trading days after the bond's maturity, it would repurchase all unconverted bonds at 108% of their face value (including the final year's interest), resulting in a payout of 108 yuan per bond (including tax and final interest). The initial conversion price was set at 5.74 yuan per share, but was repeatedly adjusted downward due to dividends and triggered downward revision clauses, eventually reaching 3.88 yuan per share. However, by August 25, the bank's stock closed at 2.95 yuan per share, nearly 24% below the latest conversion price, making conversion an unprofitable prospect for investors.

This scenario is not unique to Qingnong Bond. In July, the Ziyin Bond was delisted with a similarly poor conversion rate, with 99.98% of its 4.499 billion yuan balance left unconverted, as the underlying stock price of 2.58 yuan per share remained well below the 3.55 yuan conversion price. The bank convertible bond market is now characterized by a stark divide. While bonds like the Pufa Bond, Hangyin Bond, and Nanyin Bond, which matured last year, saw conversion rates exceeding 99%, the current four surviving bonds tell a different story: as of the end of June, only Xingye Bond and Chongyin Bond had conversion rates above 10%, while Changyin Bond and Shangyin Bond languished below 1%.

Industry analysts attribute this trend to a shift in market investment style, with many bank stocks trading persistently below their conversion prices, discouraging voluntary conversions that would result in immediate paper losses. Additionally, while some banks have implemented downward revisions to conversion prices, the adjustments have been insufficient to close the gap with current stock prices. Smaller banks, in particular, face weaker market recognition, further depressing overall conversion levels.

The bank convertible bond market has now experienced a four-year hiatus in new issuances. The last bond to be issued was the Chengyin Bond in March 2022, which was delisted in February 2025 after triggering a forced redemption. Notably, China Minsheng Bank had planned to issue up to 50 billion yuan in A-share convertible bonds to bolster core Tier 1 capital but ultimately terminated the plan in 2023. This financing tool has clearly seen its role diminish, as most listed banks are trading below net asset value, making it difficult for conversions to achieve their intended purpose of capital replenishment while adding debt repayment pressure at maturity.

In contrast, perpetual bonds and Tier 2 capital bonds have matured as more reliable capital replenishment tools, reducing the appeal of convertible bonds. However, if the banking sector's valuation undergoes a systemic recovery, convertible bonds could still find a role. In the second quarter of this year, issuance of "Tier 2 and perpetual bonds" accelerated significantly, exceeding 1 trillion yuan in total. Large state-owned banks led the charge, accounting for over half of the issuance at 615 billion yuan. ICBC topped the list with 210 billion yuan, followed by Bank of China at 130 billion yuan, China Construction Bank at 90 billion yuan, and Bank of Communications at 80 billion yuan, with Postal Savings Bank and Agricultural Bank of China issuing 70 billion and 35 billion yuan respectively. Issuance slowed in July to 225.6 billion yuan, nearly halving from the monthly peak, and has continued to taper in August, bringing the year-to-date total to over 1.28 trillion yuan as of August 26.

While preferred shares and perpetual bonds can supplement other Tier 1 capital, they do not directly contribute to core Tier 1 capital. Smaller banks, with weaker profitability and limited retained earnings, struggle with internal capital generation. External financing channels are also constrained, keeping pressure on core Tier 1 capital adequacy ratios.