?
The successful listing debuts of Bank of Nanjing and Bank of
Ningbo, the first two city lenders to go public, are expected to
spur a new round of city bank listings.
Top officials of seven other city banks, including Bank of
Shanghai, Bank of Beijing, Bank of Chongqing and Bank of Hangzhou,
are publicly talking about their own listing plans.
"After most State-owned banks went public, listings by the city
banks are expected to become a trend and a new focus for
investors," says Shi Lei, an analyst at Tianxiang Securities.
Except for the Agricultural Bank of China, all other State-owned
banks - Bank of China, Industrial and Commercial Bank of China
(ICBC) and China Construction Bank - are already listed on the
mainland stock market. Many joint-stock banks, such as China Citic
Bank, Industrial Bank and China Merchants Bank, have also been
listed.
Cai Esheng, vice-chairman of the China Banking Regulatory
Commission (CBRC), told a recent forum that the government would
support qualified city banks in public listings, according to
China Securities News.
Analysts say city banks have unique characteristics and
advantages that can help them better serve small- and medium-sized
companies and because of that they have large profit growth
potential.
"City banks have the advantages of being familiar with the local
market so that they can create more localized, innovative
products," says Ren Zhuang, an analyst at Industrial
Securities.
The total assets of city banks grew 28.3 percent in the first
quarter this year, while that of joint-stock banks increased 22.5
percent and assets of State-owned banks grew 14 percent in the same
period.
Non-performing loans in city banks have declined in recent
years, down from 7 percent in May 2005 to 4.52 percent in May
2007.
Average capital adequacy ratios in city banks rose from 7.12
percent to 8.48 percent at the end of 2006, higher than the minimum
of 8 percent required by the CBRC. The capital adequacy ratio of
Bank of Nanjing was 11.71 percent while that of Bank of Ningbo was
11.48 percent.
A total of nine city banks have attracted foreign strategic
investors, including those in Shanghai, Nanjing, Xi'an, Ji'nan,
Beijing, Tianjing, Hangzhou, Nanchong and Ningbo.
BNP Paribas of France owns 12.15 percent of Bank of Nanjing and
Singapore's Overseas Chinese Banking Corp owns around 10 percent of
Bank of Ningbo.
"The performance of city banks has greatly improved after
introducing foreign investors, especially in the areas of
operational management and risk prevention," says He Sheng, an
analyst at Changjiang Securities.
Analysts note that most city banks are developing through
foreign strategic investors introducing initial public offerings
for cross-regional and national expansion.
After establishing its first branch in Taizhou, Bank of Nanjing
has submitted an application to the CBRC to set up a branch in
Shanghai and one in Hangzhou. "The speed of branches opened and the
locations the bank chooses are the key factors leading to profit
growth," says He.
Bank of Ningbo opened its Shanghai branch in April, and plans a
branch in Nanjing by the end of this year, as well as one in
Hangzhou.
"The bank is expected to open around two to three branches a
year, mainly located in the Yangtze River region," says He.
The performance of city banks in the well-developed eastern
regions was often better than those in less-mature middle and
western regions. The eastern coastal region offer much greater
business opportunities from higher local government revenue, an
active private business sector and higher personal incomes.
Yet risks exist in the development and expansion of city banks,
most of which are too concentrated in service and loans to top-10
clients that account for a high percentage of their business,
exposing them to credit risks and policy changes.
"Some city banks have a higher proportion of investment in
corporate bonds. Once the government raises the interest rate or
takes other economic controls, the bank may make a loss on
corporate bonds," says He.
He adds that city banks should control internal risks in the
asset expansion to prevent their bad loan ratio from
increasing.
By the end of 2006, there were 114 city banks in China with
total assets of 2.6 trillion yuan.
(China Business Weekly August 6, 2007)
