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HONG KONG, Apr 19, 2011 - (ACN Newswire) - According to research published by Fitch, one of the top three credit rating agencies in the world, the asset quality of China's banks may deteriorate in the next three years and the Outlook on China's Long-Term Local Currency Issuer Default Rating was revised from Stable to Negative. However, China Everbright Bank (CEB), which published its first annual report upon its listing debut in the A share capital market and realized "double-dip" in both non-performing loans and non-performing loan ratio for six consecutive years, had its ratings affirmed, with Individual Rating at "D/E" and Support Rating at "2".
Industry players indicated that Fitch's negative rating action may reflect concerns on banks' bad debts as China's investment of RMB4 trillion to cope with the financial crisis may not be as successful as expected. Most domestic securities dealers nonetheless remained optimistic about the prospect of China's banking system. According to Cao Yuanzheng, the Chief Economist of BOC International, the banking industry remains stable at the moment, partly attributable to low bad debt ratios and the rapid increase in provision coverage ratios within the industry and partly due to China Banking Regulatory Commission (CBRC)'s latest requirement of maintaining provisions of 2.5% of total loans, which will be sufficient to guard against any possible risks in the future. Meanwhile, analysts of China Jianyin Investment Securities suggested that the banking sector is one of the sectors which benefit most from "low premium valuations". At the very least, the banking industry is set to sustain high profit growth in the next two years.
In fact, all joint-stock listed banks fared well in terms of asset quality upon reviews of their annual reports for year 2010. Both CEB and Hua Xia Bank (HXB) achieved simultaneous decrease in non-performing assets and non-performing asset ratios. CEB, in particular, has fulfilled the target of "double-dip" for six consecutive years. Meanwhile, 8 joint-stock listed banks experienced sharp increase in their provision coverage ratios, among which CEB's provision coverage ratio posted 313.38%, more than double as compared with 150.11% as at the end of 2008. Some analysts claimed that the overall asset quality of the 8 joint stock listed banks in 2010 was the best in history.
For instance, CEB, with a year-on-year increase of 67.4% in net profit to RMB12.79 billion, topped the league in terms of growth. Amid such rapid growth, the bank experienced significant improvement in both its asset quality and capital adequacy ratio. As at the end of 2010, the bank's capital adequacy ratio and core capital adequacy ratio reached 11.02% and 8.15%. Its non-performing loan balances amounted to RMB5.831 billion and its non-performing loan ratio posted 0.75%, representing a sharp fall of RMB2.296 billion and 0.5 percentage point from the end of 2009, respectively. With market consensus of an increase in its earnings and H share listing in the future, CEB will see further increase in capital strength, resilience against risks and core competitiveness.
In addition, CEB's total deposits exceeded RMB 1 trillion for the first time in 2010 to RMB1,063.2 billion, representing a year-on-year increase of 31.6% over 2009 and ranking first among joint stock commercial banks in the industry. The total corporate deposits of the bank amounted to RMB896.8 billion, representing an increase of 33.4% as compared with RMB224.5 billion of corporate deposits in 2009. Notably, loans to small and medium-sized enterprises witnessed the most astounding growth. As for loan to deposit ratio which concerns the market, CEB's loan to deposit ratio was 71.15% as at the end of 2010, well beyond the 75% threshold set by CBRC.
In 2010, CEB adopted deposit business as its strategy in all directions. According to our understanding, the Bank saw blistering growth in credit cards, wealth management, custody and other related businesses in 2010, which provided impetus to the development of its retail business lines. In anticipation of the rapid increase in China's per capita income and the expansion of the high-income group, CEB's "Sunshine Wealth Management" which has been widely recognized by the society and refers to wealth and asset management as part of its equation for deposit growth, is expected to become increasingly competitive. On the other hand, CEB's promotion of modular operations has succeeded in facilitating the development of small and medium-sized enterprises through ten customized major financing models. As at the end of 2010, the balance of loans to small and medium-sized enterprises amounted to RMB112.2 billion, representing a surge of 72.4% over 2009. Such increment ranked first among all banks.
As disclosed in the annual report, the management will actively foster modular operations to "enrich its development". In addition to strengthening its management on capital and risks, the Bank will also step up its efforts in expanding its retail and intermediary business. Recently, CEB has been proactively preparing for its H share listing. As its capital strength grows, CEB is poised to accelerate its development and achieve greater growth potential.
Topic: Research / Industry Report
Source: China Everbright Bank Co Ltd
Sectors: Daily Finance
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From the Asia Corporate News Network
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