(Yicai Global) Aug. 3 -- China's securities watchdog has surprised the market by denying the Bank of Nanjing's application for an additional share offer worth CNY14 billion (USD2 billion) as tighter regulation and declining profits squeeze the capital funds of small and mid-sized banks.
Insiders and analysts interviewed by Yicai Global all expressed surprised at the China Securities Regulatory Commission's rejection of the lender's application and are still unsure whether it is because of the stock market's recent slump or tightened regulatory control over private placements, or if the bank's plan had drawbacks.
The Shanghai-listed lender aimed to issue up to 1,696 million shares, with the funds to replenish the company's core tier-1 capital.
"The Bank of Nanjing has long been greatly stressed because of inadequate capital," an insider at the Bank of Nanjing told Yicai Global. "It surprised us all that our private placement scheme that had been so long planned was denied. Whether we will post an explanatory statement on this issue later remains to be seen."
The Bank of Nanjing has been performing well in terms of its non-performing loan ratio, Yicai Global found after comparing its financial statements with those of other urban commercial banks. Its NPL ratio was 0.86 percent, or zero month-on-month growth, its latest semi-annual performance bulletin for the first half shows.
The figure for its capital adequacy ratio is less satisfactory, however. The adequacy ratio of its core tier-1 capital was just 8 percent, while that of tier-1 capital was 9.5 percent, with a capital adequacy ratio of 12.8 percent. All three have declined for several consecutive years.
The rejection likely relates to the notice of punishment the bank received from the CSRC in January when one of its Jiangsu province branches was slapped with an administrative penalty of CNY32 million (USD4.7 million) for illegal bill discounting.
Though its share offer plan was denied, the bank successfully issued a first batch of bonds this year, raising CNY8 billion to replenish its mid- and long-term debt financing and support its asset business.
The Bank of Nanjing's stock [SHA:601009] fell 0.5 percent today to close at CNY7.52 (USD1.09).
Editor: Ben Armour