Capital Pressure Sends Rural Commercial Banks Scrambling for IPOs

Capital Pressure Sends Rural Commercial Banks Scrambling for IPOs

Yuan Ziyi

Date: Mon, 05/14/2018 - 19:19 / source:Yicai
Capital Pressure Sends Rural Commercial Banks Scrambling for IPOs
Capital Pressure Sends Rural Commercial Banks Scrambling for IPOs

(Yicai Global) May 14 -- Banks, securities firms, futures companies and other financial institutions have recently frantically applied for initial public offerings. Among the 284 firms set for audit which have already submitted applications but await review by China Securities Regulatory Commission are small rural commercial banks with relatively poor operations.

These eight rural banks businesses lack diversity and their main operating revenues all derive from net interest income, with loan services as their core business, the operating data they submitted to the commission show, as Yicai Global has learned.

The cases of Jiangsu Dafeng Rural Commercial Bank Co. and Anhui Ma’anshan Rural Commercial Bank Co. are illustrative. The two are very similar in business structure, performance and total assets and both lack controlling shareholders and actual controllers because of a relatively loose ownership structure.

The asset structures of the two rural commercial banks with similar total assets, operation revenue and net profit scale, show deposits make up 70 percent of Dafeng’s Rural Commercial Bank’s total assets, while half of Ma’anshan’s assets come from loans, Yicai Global has discovered.

Capital Inadequacy

The capital adequacy ratios of Ma’anshan saw a sharp decline last year. This may be one main reason why it is desperately seeking an initial public offering.

Ma’anshan’s capital adequacy ratio was 24.27 percent, 24.86 percent and 17.78 percent, respectively, between 2015 and 2017, and its primary core capital adequacy ratio was 20.36 percent, 21.05 percent and 14.81 percent, respectively, the company’s data show.

Although Dafeng’s capital adequacy ratio and the primary core capital adequacy ratio have gradually risen over the past three years, they have still stayed relatively low. Its capital adequacy ratio at the end of last year was still less than 15 percent and its primary core capital adequacy ratio never surpassed 13.5 percent.

Many NPLs

Ma’anshan’s non-performing loan ratios at the end of each reporting period were 2.62 percent, 2.75 percent and 2.32 percent from 2015 to last year, all exceeding 2 percent, with the NPLs mainly in the manufacturing, wholesale and retail sectors.

The relatively high NPL ratio in manufacturing stems mainly from the sector’s large overall loans, the bank noted, while China’s overall economic growth has slowed in recent years and this has more greatly impacted traditional manufacturing, thus dragging down companies’ solvency.

In comparison, Dafeng's NPL is relatively low and declining year by year. It was 1.56 percent last year.

Shareholders Galore

Its ownership structure is more complicated, however. Its equity structure is also one of the major barriers for Dafeng in going public, an insider told Yicai Global.

The bank had 36 corporate shareholders, 453 natural person shareholders and 227 natural worker shareholders, as well as 10 still to be confirmed, as of Jan. 26, per its latest prospectus.

Also, 159 Dafeng shareholders have pledged their equity, involving 29.97 percent of its total equity capital as of Dec. 31. Among the 10-largest shareholders, five companies pledged Dafeng shares because of their production and operating problems.

Editor: Ben Armour

 

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Keywords: IPO, Rural Commercial Bank, Non-Performing Loans, Capital Aadequacy Ratio