trending Market Intelligence /marketintelligence/en/news-insights/trending/Ah7Fw7knDiLAB_xQljdAtQ2 content
Log in to other products

Login to Market Intelligence Platform

 /


Looking for more?

Contact Us
In This List

Data highlights underwhelming pipeline of Chinese banks' A-share IPOs

Banking Essentials Newsletter - November Edition

University Essentials | COVID-19 Economic Outlook in Banking: Rates and Long-Term Expectations: Q&A with the Experts

Estimating Credit Losses Under COVID-19 and the Post-Crisis Recovery

StreetTalk – Episode 70: Banks' Liquidity Conundrum Could Fuel M&A Activity


Data highlights underwhelming pipeline of Chinese banks' A-share IPOs

The planned A-share IPOs of Chinese regional banks will likely face investor caution over their relatively small sizes, weak asset quality and lackluster profitability, analysts said.

All 16 Chinese bank IPO hopefuls are a mix of city and rural commercial lenders, according to the China Securities Regulatory Commission. As key lenders to farmers and small businesses, many of these banks are looking to replenish capital to meet regulators' increasingly stringent capital requirements, which at the same time restrict their lending capacity.

The IPO pipeline is in stark contrast to the wave of debut listings among Chinese banks in previous years, when large national lenders floated their shares on domestic and overseas bourses, attracting the world's top financial institutions as strategic investors. Industrial & Commercial Bank of China Ltd., China's largest bank by assets, for instance, raised US$19 billion from what was then the world's largest IPO in 2006, and attracted strategic investors such as Goldman Sachs Group Inc. and American Express Co.

According to an analysis of 15 S&P Global Market Intelligence-covered Chinese regional banks planning to go public, seven of them — Bank of Lanzhou Co. Ltd., Bank of Suzhou Co. Ltd., Bank of Xi'an Co. Ltd., Chongqing Rural Commercial Bank Co. Ltd., Qingdao Rural Commercial Bank Corp., Xiamen Bank Co. Ltd. and Zhejiang Shaoxing Rui Feng Rural Commercial Bank Co. Ltd. — reported common equity Tier 1 ratios higher than the average of 9.97% among mainland-listed banks as of end-2017.

"Banks will be able to secure more financing channels, such as private placements, after IPOs," said Yang Rong, a banking analyst with China Securities.

"Small and medium-sized banks often face difficulties in meeting the capital adequacy requirements, which limits their ability to expand their business," Yang said.

SNL Image

Underwhelming metrics

According to the same analysis, the banks with the highest nonperforming loan ratios were Maanshan Rural Commercial Bank, Bank of Lanzhou and Qingdao Rural Commercial Bank, which posted ratios of 2.27% 2.02% and 1.86% as of Dec. 31, 2017, respectively. The average among all mainland-listed banks was 1.51%.

China Zheshang Bank Co. Ltd.'s NPL ratio of 1.14% is among the lowest of the banks seeking an IPO. The Zhejiang-based bank, which is the largest bank by assets among the 16 IPO hopefuls and the 20th-largest in China by assets in 2017, reported a net interest margin of 1.81% and posted the lowest CET1 ratio of 8.29% as of Dec. 31, 2017.

Meanwhile, the lowest NPL ratio was recorded by Chongqing Rural Commercial Bank at 0.98%. It reported a CET1 ratio of 10.39% and NIM of 2.62% as of end-2017.

Among the 16 regional banks waiting to list, Bank of Qingdao and Jiangsu Zijin Rural Commercial Bank Co. Ltd. secured official regulatory approvals in November 2018.

Bank of Xi'an and Qingdao Rural Commercial Bank passed the review by the Issuance Appraisal Committee at the CSRC in October 2018, but have not received final approval. The remaining 12 are still at an early stage of the process, according to the regulator.

The 12 banks are Bank of Lanzhou, Bank of Suzhou, Xiamen Bank, Bank of Chongqing Co. Ltd., Xiamen Rural Commercial Bank Co., Ltd., Chongqing Rural Commercial Bank, Bozhou Yaodu Rural Commercial Bank Co. Ltd., Jiangsu Dafeng Rural Commercial Bank Co., Ltd, Maanshan Rural Commercial Bank, Jiangsu Haian Rural Commercial Bank, Zhejiang Shaoxing RuiFeng Rural Commercial Bank and China Zheshang Bank.

If all these banks debut successfully, there will be 31 regional banks listed on the A-share market.

There are 28 banks, including five state-owned banks, eight joint-stock banks and 15 city and rural commercial banks, listed domestically in China.

SNL Image

Unfavorable timing

The timing is also unfavorable for these smaller IPO hopefuls, as valuations of Chinese stocks have been falling due to a slowing economy and rising global uncertainties.

The Shanghai Stock Exchange Composite Index has lost almost 25% over the course of 2018, while the Shenzhen Stock Exchange Composite Index, another domestic benchmark index, has lost more than 30% over the same time period.

Louis Lau, a partner in the capital markets advisory group at KPMG, noted that the robust growth of "new economy sectors" — mostly internet-based businesses — are also diverting investor interest from traditional industries including the financial sector.

"The new economy companies are replacing old economy ones as drivers [in the A-share market]," Lau said.

The number of IPOs on the A-share market dropped significantly to 105 as of Nov. 30, 2018, from a total of 438 recorded for full year 2017, according to KPMG data. The financial services industry only accounted for 22% of funds raised as of Nov. 30, 2018, down from 25% in 2016, whereas that of the technology sector increased to 34% from 21% in 2016.

As of Jan. 1, US$1 was equivalent to 6.88 Chinese yuan.

SNL Image

To find a section dedicated to asset quality for a bank, search the company in the top search box and go to the "Asset Quality Detail" section, housed under "Financials" on the left. Here is an example for Industrial and Commercial Bank of China Ltd.
Click here to set-up real-time alerts for data-driven articles.