China's small banks head to
market By Olivia Chung
HONG KONG - Tumbling stock markets and
deepening global concern over the US financial
crisis are failing to deter China's push to list
its small banks, as the government continues to
look for ways to curb the country's excessive
liquidity and draw more funds from circulation.
Three of the country's 100-plus city
commercial banks, restructured to clarify
share-ownership issues and to clear up bad loans,
have already listed yuan-denominated A shares to
strong demand as they benefit from offering modern
banking services amid the country's surging
economy.
Foreign investors can access the
domestically listed A shares
through funds established by
approved overseas banks and brokerages and
mainland China counterparts under the Qualified
Foreign Institutional Investor scheme.
Bank of Ningbo's 4.14 billion yuan (US$554
million) A-share sale last July was oversubscribed
228 times and the stock has since doubled in value
on the bank's strong growth prospects. The lender,
based in coastal Zhejiang province and with
Singapore's OCBC Bank as one of its shareholders,
has estimated that profit last year jumped by
between 30% and 50%, supported by higher income
from credit-card fees and other consumer services.
The city banks are profiting from the edge
given them by better knowledge of local commerce,
markets and needs, compared with bigger lenders,
according to Kenny Tang, associate director from
Tung Tai Securities in Hong Kong.
"As city
banks are familiar with the city governments and
know the local market better than big lenders,
they have an advantage ... when they are seeking
more profitable sectors such as private banking
and wealth management," Tang said.
The
funds raised by IPOs will also help smaller banks
respond to demand for loans from small and
medium-sized companies keen to capture an
increased share of the country's fast-growing
economy, said Guo Tianyong, director of the
banking research center under the Central
University of Finance and Economics, said.
"Small and medium-sized enterprises, a key
part of the economy, are short of capital
supply,'' said Guo. At the same time, "going
public will help city commercial banks compete
against their bigger rivals."
The new
funds will also help the lenders respond to
government pressure to expand beyond their home
areas, said Tang.
City banks have evolved
from city credit unions set up in the mid-1990s
initially to serve government-backed enterprises,
regardless of the risks. The government, concerned
that they were weak in risk management and fell
short in serving private businesses as the country
developed more along market-economy lines, began
consolidating them into city commercial banks in
the late 1990s.
The lenders, which
according to business information
providerResearchInChina held about 6%, or 2.59
trillion yuan, of the mainland banking system's
total assets at the end of 2006, still have a
responsibility to serve small and medium-sized
businesses and promote local economic development.
The funds raised through IPOs, which
follow popular overseas and local IPOs by the much
country's larger top state-owned and joint-stock
national banks, would help them to broaden the
scope of services, Guo said. "They will have more
funds to pump into more channels such as mutual
funds, bonds and equity to diversify risks and
improve profitability."
Hitherto, the city
banks' income has come mainly from loan interest,
while their deposits mainly came from corporate
savings with about 10% from private savings.
Bank of Ningbo led the way with city bank
IPOs along with Bank of Nanjing, partly owned by
French lender BNP Paribas and based in the capital
of eastern Jiangsu province, which raised 6.93
billion yuan last July.
Bank of Beijing,
which raised $2 billion in September when it
became the third city-level bank to go public in
Shanghai, forecast profit would increase at least
50% in 2007. Net income rose 47% to 1.1 billion
yuan in the third quarter on increased loans.
Those forecasts may not be out of line
with reality, if earnings outlooks announced this
week by bigger rivals such as Industrial and
Commercial Bank of China (ICBC), the world's
largest lender by market value, are anything to go
by.
Even allowing for possible writedowns
related to the US subprime mortgage crisis, ICBC
forecast a 2007 profit jump of more than 60% to
above 78 billion yuan. China Construction Bank
Corp (CCB), the mainland's third-largest lender by
assets, indicated a 48% gain to 68.56 billion
yuan. Their performances could still lag those of
China Merchants Bank and China Citic Bank Corp,
both of which said they may have doubled profits
last year.
Such figures should help spur
demand for Bank of Shanghai, Bank of Tianjin,
Hangzhou City Commercial Bank and Chongqing City
Commercial Bank, which have all said they plan to
go public without indicating details on venue,
date or size of the intended listings.
Others looking to raise funds through IPOs
include Jiangsu-based Changshu Rural Commercial
Bank, in which Bank of Communications has agreed
to invest 380 million yuan. Shanghai Daily quoted
an unnamed source as saying Changshu Rural has
hired China Securities Company to advise on the
IPO.
Changshu Rural, which opened in
November 2001, had 28.86 billion yuan in total
assets at the end of last year. It has a capital
adequacy ratio of 14.16%, compared with the
regulatory minimum of 8%, and a non-performing
loan rate of 1.24%.
Another candidate,
Dongguan City Commercial Bank in Guangdong
province, said in December it had hired Goldman
Sachs Gaohua Securities to advise on a possible
domestic IPO this year.
Olivia
Chung is a senior Asia times Online
reporter.
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