OREANDA-NEWS.
OREANDA-NEWS. Issuance of additional tier 1 (AT1) instruments picked up after a slow 1H16 as established issuers returned to the market, says Fitch Ratings in its latest Dashboard for AT1. Banks raised only USD22.8bn in 1H16, about half of the volume in 1H15, but large issuance in August and September, by UK, Swiss and French banks, signal a cautious recovery of the market.

While prior to the UK's EU referendum issuance by UK-based banks had slowed down, Barclays, RBS and Standard Chartered issued a total USD6.15bn of 7%-trigger AT1 bonds in August.

Asian issuers returned to the market after a muted second quarter, with ICBC Asia and DBS Group Holdings Ltd's issues signalling resilient investor appetite. State Bank of India's recent USD offering represented the first cross border AT1 by an Indian bank. Fitch estimates that Indian banks will require around USD90bn in new capital by the end of the fiscal year to March 2019 to meet Basel III standards, of which around 30% will be required in AT1.

In the eurozone, further issuance will be underpinned by a recent clarification around the maximum distributable amount (MDA) threshold, which should result in lower MDA-relevant Pillar 2 requirements. In addition, the announced introduction of a total capital requirement following the 2016 Supervisory Review and Evaluation Process (SREP) should be supportive of the AT1 market as banks will have an incentive to meet part of the requirement with AT1 rather than CET1 capital.

The Fitch Trigger Distance Average - which measures the write-down/conversion risk in the AT1 market - decreased to 687bp at end-2Q16 (by 21bp), despite all but one newly added issue having 5.125% triggers. Across all issues the weighted average end-1Q16 CET1 ratio referenced by the triggers decreased to 12.7% from 12.8%. This was in part caused by large issuers experiencing a dip in the fully-loaded CET1 ratio, but also by the phase-in arrangements due in 1Q16.

Fitch's updated AT1 Tracker Tool includes 212 rated and unrated AT1 and other capital-trigger bonds totalling USD240bn issued up to end-2Q16 as well as financial data on AT1 issuers, which allows users to assess the absolute and relative coupon risk of AT1 instruments and the write-down/conversion risk of AT1 and Tier 2 contingent capital instruments. The Dashboard also includes country - or bank-specific commentary including on expected changes to SREP requirements and the MDA threshold for eurozone issuers.

The next instalment of the AT1 Tracker will be published in 4Q16, including issuance up to end-3Q16.