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Smaller banks quicken pace for IPOs to tap rising funds demand

2017-08-14 2 ℃

CHINESE small and medium-sized banks have stepped up their pace in going public to meet growing capital demand from rapid business expansion and tightened regulation.

As of last week, there were 12 banks waiting for IPO approval from the country’s securities regulator, the second group to enter the stock market after entry was reopened for banks more than a year ago. Nine were city banks, including Bank of Lanzhou and Bank of Changsha, while three were rural commercial banks.

Six posted double-digit growth in net profit in 2016 despite a lackluster banking sector, while Bank of Chengdu saw an annual drop of 8.48 percent.

But the lenders all face the same situation of limited financing sources.

Unlike bigger, more renowned peers with abundant depositors, small and medium-sized banks, although developing rapidly, often face difficulties in meeting regulatory requirements in capital adequacy, which is a precondition for business expansion. Bank of Xi’an improved its total assets by 3.78 percent from a year ago in 2016, but its capital adequacy ratio dropped 1.2 percent.

Chinese financial regulators have toughened up supervision to defuse accumulated risks in past months, resulting in higher standards on capital.

The IPOs will allow banks to secure more financing channels, including private placement and preferred stocks to replenish capital, analysts said. The Economic Information Daily estimated the total capital raised by them will range from 23.95 billion yuan (US$3.6 billion) to 61.19 billion yuan.

“Going public is positive for them. It will help improve corporate governance, standardize information disclosure and generate publicity nationwide,” said Zeng Gang, a research fellow with the Chinese Academy of Social Sciences.

As new shares usually see price jumps for days, the banks will also enjoy an increase in assets after listing.

But analysts warned of obstacles like bad loans as they tap the capital market.

More than half of the 12 banks had a higher non-performing loan ratio in 2016. Bank of Chengdu and Qingdao Rural Commercial Bank saw their NPL ratios rise to 2.21 percent and 2.01 percent, respectively, above the 1.74 percent in the whole sector.