(Bloomberg) -- China’s central bank announced the first of a new kind of market operation which aims to encourage financial institutions to issue perpetual bonds to boost their capital.

The People’s Bank of China will swap 1.5 billion yuan ($223 million) of perpetual bonds for 1-year central bank bills with a coupon of 2.45 percent, according to a statement on its website Wednesday. The PBOC announced the new tool last month and so far, the Bank of China has issued 40 billion yuan worth of perpetual bonds.

The central bank wants more lenders to follow suit, as it sees the need for larger capital buffers. The government is already pushing them to shift informal lending back onto official balance sheets, and losses from bad debts are likely to increase as the economy slows.

“There’s more work to do to refill banks’ capital through the bond market” and selling perpetual bonds is a good way to do that, PBOC Deputy Governor Pan Gongsheng said on Tuesday in Beijing.

To contact Bloomberg News staff for this story: James Mayger in Beijing at jmayger@bloomberg.net;Yinan Zhao in Beijing at yzhao300@bloomberg.net

To contact the editor responsible for this story: Jeffrey Black at jblack25@bloomberg.net

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