- The application of Tianjin-based lender to list in Hong Kong, owned 20 per cent by Standard Chartered, has been acknowledged by China’s securities regulator
- Analyst says the valuations of Chinese banks hoping to list may come under pressure as loans sour amid coronavirus outbreak
China Bohai Bank, in which Standard Chartered owns a 20 per cent stake, has moved a step closer towards listing in Hong Kong, after the mainland's markets regulator received its application last week.
But, the bank has some way to go before it can successfully launch its IPO, including submitting further written responses to China Securities Regulatory Commission's questions that arise during the vetting stage.
In December, Bloomberg reported citing sources that China Bohai Bank was planning to raise up to US$2 billion in the second half of this year. However, it is doubtful that the Tianjin-based lender will be in any rush to come to the market, as banks' valuations are likely to come under pressure if the Covid-19 epidemic drags on, said Terry Sun, a banking analyst at CMB International Securities.
The outbreak, which grounded business activity to a halt on the mainland in the first half of February, is likely to result in higher loan delinquencies from small and medium-sized enterprises and affect Chinese banks' asset quality in the first quarter.
China Bohai Bank plans to raise US$2 billion in Hong Kong IPO
China Bohai Bank was not immediately available for comment.
"Several Chinese bank debutants, such as CZ Bank's A-share listing in November, were priced at the minimum price-to-book ratio of one time as required by the regulator," said Sun. "Still, many of them have been trading below that level after listing, at 0.8 times in China or 0.7 times in Hong Kong."
In China, a state-owned issuer is not allowed to price its initial public offering at a valuation lower than its per share book value. Government-related entities, including Tianjin TEDA Investment Holding, own a 62 per cent stake in China Bohai Bank, according to its 2018 annual report.
Earlier this month, China's banking regulator told banks to dial up their tolerance for bad debt, especially from SME borrowers or micro enterprises hurt by the coronavirus outbreak. Banks will be allowed to exclude overdue loans that are repaid after a certain grace period from non-performing loans, said Li Junfeng, a China Banking and Insurance Regulatory Commission official.
CMB's Sun said a temporary rise in overdue loans is unavoidable in the first quarter, adding that this would mainly come from companies involved in wholesale and retail, transport, and hotels and catering sectors. These sectors account for about 15 per cent of Chinese banks' total loan book.
"Banks that have a higher exposure to SME or retail borrowers would be more vulnerable to asset quality worsening," said Sun, adding that the extent of overdue loans turning into NPLs would largely depend on whether there is more regulatory support for the banks.
According to China Bohai Bank's 2018 annual report, retail lending accounted for about 30 per cent of its loan book.
For the nine months ended September 2019, its net profit stood at 6.62 billion yuan (US$945.1 million), up 6.1 per cent from a year ago, while total revenue rose 18.8 per cent year on year to 21.13 billion yuan. Of this, net interest income was 16.2 billion yuan, while fees and commission income totalled 3.93 billion yuan.
Non-performing loan ratio was at 1.78 per cent, a 6 basis point improvement from the 1.84 per cent at end of 2018, but still higher than the industry's 1.63 per cent for joint-stock banks, according to CBIRC data.
Haitong International Securities, which was reportedly involved in the deal, declined to comment, while CCB International (Holdings) and ABC International were not immediately available for comment.
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