(Yicai Global) June 24 -- More stakeholders in China's small and medium-sized banks are in a hurry to sell their equity as the business performance of these lenders has dropped due to the economic fallout from the Covid-19 pandemic and with it the value of their assets. But the market response has been cool.

Some 1,213 auctions of banks’ equity have been held on e-commerce giant Alibaba Group Holding’s judicial auction platform so far this year and there are another 160 in the queue, Yicai Global has learned. Most of the shareholdings up for grabs are in village lenders as well as small and medium-sized rural and urban commercial banks. But there has not been a great response, and most of the stakes remained unsold.

The return on capital investments in the nation’s banking sector has declined for eight straight years, particularly among small and medium-sized banks, Luo Zhenxin, a postdoctoral candidate in finance at Peking University, told Yicai Global. And their asset quality has been falling since 2011.

Some sellers are even offering directorships in the lender to seal a deal as soon as possible. For example, China Shipping Investment is so keen to offload its stake in the Bank of Kunlun that it said on the Shanghai United Assets and Equity Exchange that it will offer the buyer a seat on the board as a bonus.

Bank of Kunlun, whose biggest shareholder is oil major PetroChina, has seen its profit tumble in the past few years. Last year profit sank 12.9 percent year on year and by 18.8 percent in 2020, according to its latest financial reports. The lender's capital adequacy ratio has been sliding since 2018 and stood at 13.3 percent as of the end of 2020.

And the Beijing-based bank, in which China Shipping is the third largest stakeholder, was penalized seven times by the country’s banking authorities for various offences since early last year with fines amounting to CNY4.61 million (USD689,820), per incomplete statistics.

The non-performing loan ratio of urban commercial banks was 1.96 percent and that of rural commercial banks 3.37 percent last year, both higher than the whole banking sector’s 1.69 percent, according to recent statistics from the China Banking and Insurance Regulatory Commission.

Also, some small banks are not revealing the true extent of the damage. The National Audit Office found that the bad loans held by 23 small and medium banks amounted to CNY171 billion (USD25.6 billion) more than the figures declared.

Editors: Tang Shihua, Kim Taylor