Download China Banking Report

2015
Economic
overview
Risk profile
Industry overview
Regulatory
environment
Major players
Shadow banking
Free trade zones
and ShanghaiHong Kong
stock connect
Bank branching
Deal activity
Capital markets
COMPILED BY:
Divya Lulla
Senior Analyst
Salman Aleem Khan
Senior Analyst
DESIGN BY:
Cat Weeks
All data as of April 27, 2015.
China
Banking Report
Highlights
• China’s largest bank, Industrial & Commercial Bank of China Ltd., held
20.610 trillion Chinese yuan (US$3.319 trillion) in assets at the end of
2014. China Construction Bank Corp. was the country’s second-largest
bank with 16.744 trillion yuan (US$2.696 trillion) in assets.
• Industrywide, bank assets grew 13.84% to 172.3 trillion Chinese yuan
(US$28.55 trillion) at the end of 2014 from 151.35 trillion yuan (US$25 trillion) a year earlier. The figure rose to 178.8 trillion yuan (US$28.84 trillion)
at the end of first quarter of 2015.
• The banking industry’s weighted-average return on average assets rose
4 basis points to 1.26%, exceeding Malaysia and narrowing the gap with
Indonesia, among regional peers.
• The banking industry’s weighted-average Tier 1 capital ratio rose 112 basis points year over year to 10.97% at the end of 2014, though that is still
lower than most of Asia-Pacific nations, such as Japan, Indonesia, Malaysia and Australia. China, on the other hand, has a higher credit-to-GDP
ratio than the four countries.
• The weighted-average nonperforming loan ratio climbed to 1.22% at the
end of 2014 from 0.95% at the end of 2013 and 0.92% at the end of 2012.
Growing NPLs are a concern for the Chinese economy.
• Credit default swaps on five-year sovereign bonds dropped to 90.62 basis
points as of April 27, 2015, down from the mid-2013 peak of 145.91 basis
points.
• Shares in four of the five largest Chinese banks have outperformed an
SNL Financial index for large-cap Asian banks since 2013. Between Jan.
1, 2013, and April 27, 2015, shares in Bank of China Ltd. and Bank of
Communications Co. Ltd. jumped 74.33% and 46.72%, respectively, while
the SNL Large Cap Asia-Pacific Bank index rose 33.28%. Only Agricultural
Bank of China Ltd.’s stock rose less than the index.
• There have been six announced acquisitions of stakes in Chinese banks
since the start of 2014. The most recent deal is the Feb. 13, 2015, purchase of a 5% stake in Industrial bank Co., worth $2.04 billion, by a group
of undisclosed institutional investors.
• There have been no common equity offerings by SNL-covered Chinese
banks in 2015 through April and there were three such offerings in 2014,
14 in 2013 and 16 in 2012.
As of March 31, 2015, CN¥ 6.2096 = US$1.00
Market Research & Analysis
2015 China Banking Report
Economic overview
Top 10 Asia-Pacific economies by nominal GDP
Rank
1
2
3
4
5
6
7
8
9
10
Country
China
Japan
India
Australia
South Korea
Indonesia
Taiwan
Thailand
Malaysia
Singapore
Nominal
Real GDP
Public
GDP growth 2015, Population debt/GDP
(%)
(US$B) projected (%)
(Millions)
10,449.00
7.00
1,356.0
16.70
4,830.00
1.80
127.0
226.60
2,131.00
6.50
1,256.0
51.30
1,486.00
2.50
23.5
33.40
1,432.00
3.70
50.5
37.20
850.60
5.90
253.3
24.20
505.40
3.20
23.4
36.50
389.00
4.50
67.2
48.50
333.08
5.40
30.2
54.10
310.30
3.80
5.5
106.50
All economic data is for fiscal year ending Dec. 31, 2014, unless
otherwise noted.
Sources: SNL Financial, The Economist Intelligence Unit Ltd.
China is the largest economy in the Asia-Pacific region and the second-largest in the world, with
a nominal GDP of US$10.45 trillion as of 2014. PricewaterhouseCoopers expects China to become the world’s largest economy in terms of real GDP at constant prices by 2030. The country
has the world’s largest population, with 1.36 billion people.
Median household income (US$000)
12
Median household income (US$000)
Consumer prices growth (%)
Unemployment rate (%)
7
6
10
5
8
4
3
6
2
4
1
0
2
0
-1
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-2
Consumer prices growth, unemployment rate (%)
Economic and demographic trends in China
2014, 2015, 2016 data represents forecasts.
Median household income = median nominal disposable income earned by households per annum.
Sources: SNL Financial, The Economist Intelligence Unit Ltd.
Since 1980, China’s real GDP has grown on an average 9% annually, while its consumer price
inflation has decelerated to 2.30% at the end of 2014 from 9.52% in 1985.
The country’s median household income more than tripled to US$8,570 in 2014 from US$2,660
in 2006, while its unemployment rate rose to 6.30% from 5.80% over the same period.
Market Research & Analysis
2
2015 China Banking Report
China’s real GDP since 1980
25
Real GDP (CN¥ trillion)
20
15
10
5
0
2013, 2014, 2015, 2016 data represents forecasts.
Base year = 1990
GDP valuation methods = market prices
CN¥= Chinese yuan
Source: International Monetary Fund
The International Monetary Fund said in April 2015 that consumer price inflation in China will
likely slow to 1.20% in 2015, as the yuan appreciates and commodity prices fall. The IMF also expects the country’s economic growth to decelerate to 6.8% in 2015, down 0.3 percentage points
from its forecast made in October 2014. The OECD projects China’s real GDP will grow 7.0% in
2015 amid reform efforts to counter the slowdown. The World Bank sees 7.1% growth in the
country’s real GDP in 2015. According to Moody’s, China’s real GDP will expand less than 7.0% in
2015 and growth may further slow in 2016.
The Economist wrote in March that one big drag on the Chinese economy is large debt, equivalent to 250% of GDP. Since the 2008 crisis, China has been borrowing heavily to maintain growth,
but as the economy slows and housing prices fall, debtors are now facing a big repayment burden.
Market Research & Analysis
3
2015 China Banking Report
Percentage distribution of GDP at current market prices for Q1’15*
In the first quarter of
2015, 38% of China’s
GDP was attributable
to industrial output,
including metals and
mining, and machinery manufacturing. According to a report by
Fortune, the contribution of the service sector to China’s GDP has
been increasing, as the
economy shifts away
from heavy industry.
Industry
18.14%
Financial intermediation
Wholesale and retail trades
1.82%
38.00%
Real estate
5.03%
Farming, forestry, animal
husbandry, and fishery
Construction
5.08%
5.74%
Transport, storage and post
Hotel and catering services
6.90%
9.72%
9.57%
Others
* Statistical data based on preliminary accounting results.
Source: National Bureau of Statistics of China
In 2014, the U.S. and the European Union were China’s largest export partners, accounting for
21.9% and 20.5% of the Asian country’s total exports, respectively. On the import side, the European Union took the lead, making up for 20.6% of China’s imports, followed by the ASEAN group
of countries at 17.5%, according to data from China’s National Bureau of Statistics.
According to a September 2014 forecast by FocusEconomics, China’s exports are expected to
grow 8.8% in 2015, while imports are expected to grow 9.3%.
25
Share in exports
Major import partners in 2014 (%)
YOY increase
15
25
10
20
12.7
10.7
10.3
8.9
Total exports=
US$222.2 billion
10
5
0
2.6
3.0
3.0
5.6
-1.4
8.3
20.1 20.5
21.9
5
0
15.1
-5
Share in imports
6.4
15
3.7
3.1
2.8
0
-5
10
1.1
12.8 13.4 13.7
3.5
-21.5 1.4
0
10
5
3.3
-3.9
-4.6
-6.6
-10
9.7
-0.5
15
5
15
YOY increase
Total imports= US$382.1 billion
8.3
7.2
YOY increase
Share in exports
20
Share in imports
16.0
17.5
20.6
-10
YOY increase
Major export partners in 2014 (%)
-15
-20
-25
Data is for fiscal year ended Dec. 31, 2014. Individual countries or group of countries’ shares in China’s total exports/imports are shown.
Source: National Bureau of Statistics of China
Market Research & Analysis
4
2015 China Banking Report
As of April 27, the U.S. dollar gained 0.2% against the yuan year-to-date, while it lost 0.2% against
the yuan since the beginning of 2013. According to a February 2015 Euromoney report, a stronger U.S. dollar made the yuan the second-most overvalued currency in the world after the Philippine peso at that time. As of March 31, US$1 was equivalent to 6.1983 yuan, compared to
6.2350 yuan at the end of 2012.
An important aspect of China’s economic policy is the management of foreign exchange rates to
help exporters. China restricts movements in the yuan against the dollar within a certain range
from a daily reference rate, effectively giving goods from the world’s largest exporter an edge in
global markets by limiting currency appreciation. However, amid pressure from China’s major
trading partners, China has widened the trading band gradually in the past few years, leading
the yuan to strengthen.
However, according to a March 2015 report by the Financial Times, China’s shrinking foreign
exchange reserves suggest that the People’s Bank of China is seeking to prevent the yuan from
weakening against the dollar by using its dollar holdings to buy the local currency. So far, there
has been no clear indication from PBOC that it will loosen its grip on the yuan like the Swiss National bank did at the start of 2015.
Chinese yuan against US dollar since 2013
Chinese CN¥ per U.S. dollar
6.3
6.3
6.2
6.2
6.1
6.1
6.0
6.0
5.9
Source: SNL Financial
In an effort to boost lending and counter slowing growth, the PBOC in April lowered the
reserve requirement ratio for all Chinese banks by 100 basis points to 18.5%, the single largest
reduction in the RRR since the global credit crisis in 2008.
On Feb. 28, China’s central bank cut interest rates for the second time in four months, as the country struggles with a slow property market, falling commodity prices and deflationary pressures.
Click here for economic and demographic data of China.
Market Research & Analysis
5
2015 China Banking Report
Risk profile
Moody’s has kept China’s government bonds ratings stable at Aa3, since April 2013. The rating
agency in January 2015 maintained a stable outlook for Chinese banks, saying monetary policy,
financial supervision and market reform will have a profound impact on lenders in the country.
On March 31, Fitch Ratings affirmed China’s long-term foreign and local currency ratings at A+.
Country risk
Country/province
Political
Operational
Security
Terrorism
China
Medium
Medium
Low
Low
Non-central districts of cities in Guangdong
province; remote border areas
Medium
Medium
Medium
Low
Xinjiang Uighur Autonomous Region (XUAR)
Medium
Medium
Medium
Medium
Copyright © 2014 by Control Risks Inc.
According to data from S&P Capital IQ, credit default swaps on the country’s 5-year bonds
were quoted at 90.62 basis points as of April 27, down from the mid-2013 peak of 145.91 basis
points.
China 5-year midpoint CDS prices vs. peers (bps)
350
Indonesia
Australia
China
Republic of Korea
Malaysia
300
250
200
150
100
50
0
Sources: S&P Capital IQ, SNL Financial
Market Research & Analysis
6
2015 China Banking Report
Industry overview
China’s banking system is the largest in the Asia-Pacific region, with total bank assets amounting to US$16.9 trillion as of 2014, according to estimates by The Economist Intelligence Unit
Ltd. Bank assets in the country were equivalent to about 162% of nominal GDP, compared to
Japan’s 193%, Australia’s 214% and Hong Kong’s 612% in 2014.
Top 15 Asia-Pacific countries by total bank assets
Rank
1
Country
China
FY'14
16,899.00
Total bank assets (US$B)
FY'13
FY'12
15,108.78
13,056.48
2014 bank assets/
GDP (%)
161.73
Long-term sovereign rating
Fitch
Moody's
A+
Aa3
2
Japan
9,322.77
8,885.01
10,160.71
193.02
A
A1
3
Australia
3,182.26
3,013.43
3,346.51
214.15
AAA
Aaa
4
South Korea
2,167.43
1,976.24
1,880.07
151.36
AA-
Aa3
5
India
2,153.78
1,786.85
1,769.66
101.07
BBB-
Baa3
6
Hong Kong
1,761.70
1,650.89
1,593.29
612.55
AA+
Aa1
7
Taiwan
1,299.97
1,213.44
1,181.86
257.22
A+
Aa3
8
Singapore
889.18
816.04
772.46
286.55
AAA
Aaa
A3
9
Malaysia
832.62
746.76
742.94
249.98
A-
10
Thailand
530.89
492.92
433.38
136.48
BBB+
Baa1
11
New Zealand
347.79
332.16
333.85
180.07
AA
Aaa
12
Indonesia
341.15
293.32
292.21
40.11
BBB-
Baa3
13
Philippines
236.65
201.60
184.26
80.82
BBB-
Baa2
14
Vietnam
201.69
181.30
158.53
107.97
BB-
B1
15
Pakistan
115.09
95.17
85.40
46.66
NA
Caa1
Limited to countries where the data is available.
NA= not available
Sources: SNL Financial, The Economist Intelligence Unit Ltd.
Data from the China Banking Regulatory Commission suggests China’s banking industry is larger than The Economist Intelligence’s estimates. According to the commission, aggregate banking assets in China increased 13.84% to 172.3 trillion yuan (US$28.55 trillion) at the end of 2014
from 151.35 trillion yuan (US$25 trillion) at the end of 2013 and 445.27% to 31.6 trillion yuan
(US$3.82 trillion) a decade earlier. Aggregate assets stood at 178.8 trillion yuan (US$28.84 trillion) at the end of first quarter of 2015, equivalent to 273% of nominal GDP.
Market Research & Analysis
7
2015 China Banking Report
According to the CBRC’s latest annual report released in September 2014, aggregate loans at
the country’s banks grew to 76.63 trillion yuan (US$12.66 trillion) as of December 2013 from
67.29 trillion yuan (US$10.79 trillion) a year earlier and 16.98 trillion yuan (US$2.05 trillion) at
the end of 2003. China’s aggregate loan-to-deposit ratio fell to 71.58% as of Dec. 31, 2013, compared to 77.04% at the end of 2003.
Aggregate assets at Chinese banks (CN¥ trillion)
200
178.8
172.3
180
151.35
160
133.62
140
113.29
120
95.31
100
79.51
80
63.15
53.12
60
40
20
0
FY'07
FY'08
FY'09
FY'10
FY'11
FY'12
FY'13
FY'14
FY'15*
Aggregate loans, deposits at Chinese banks
Total loans (CN¥ trillion)
Total deposits (CN¥ trillion)
120
72
71
70
80
69
60
68
67
40
Loans/deposits (%)
Total loans, deposits (CN¥ T)
100
66
20
0
65
FY'07
FY'08
FY'09
FY'10
FY'11
FY'12
FY'13
64
Assets data include consolidated assets of banking institutions within and outside China
CN¥ = Chinese yuan
Sources: SNL Financial, People’s Bank of China, China Banking Regulatory Commission Annual Report 2013
Market Research & Analysis
8
2015 China Banking Report
Total domestic credit extended by financial firms in China as a percentage of GDP stood at
162.96% in 2013, compared to 159.10% in Australia.
Domestic credit as a percentage of GDP (%)
180
Australia
China
Malaysia
South Korea
Indonesia
160
140
120
100
80
60
40
20
0
Represents domestic credit provided by the financial sector as a percentage of GDP.
Source: The World Bank
In 2014, SNL-covered Chinese banks posted an asset-weighted average ROAA of 1.26%, which
was better than Malaysian, Australian and Japanese peers. However, China’s weighted-average
Tier 1 ratio was lower than most of its peer group at 10.97% in 2014.
According to a November 2014 progress report on adoption of the Basel regulatory framework,
China was found to be “compliant” with 12 of the 14 assessed components. The two “largely
compliant” components were related to the Standardised Approach for credit risk and Pillar 3
market discipline. Regional peers Thailand, Singapore and the Philippines have also adopted
Basel III and are in the process of phasing in capital requirements.
The weighted-average nonperforming loans ratio for Chinese banks rose to 1.22% in 2014,
from 1.16% in 2010.
At the end of 2013, 2.27% of Chinese bank loans made to the agriculture, forestry, animal husbandry and fishing sector were nonperforming, the highest ratio of any industry, followed by
the wholesale and retail trade sector at 2.16%.
Market Research & Analysis
9
2015 China Banking Report
Aggregate trends for select countries
ROAA (%)
2.5
Australia
China
Indonesia
South Korea
Malaysia
Japan
2.0
1.5
1.0
0.5
0.0
FY'10
FY'11
FY'12
FY'13
FY'14
Tier 1 ratio (%)
26.0
Australia
China
Indonesia
South Korea
Malaysia
Japan
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
FY'10
FY'11
FY'12
FY'13
FY'14
Nonperforming loans-to-total loans (%)
4.5
Australia
China
Indonesia
South Korea
Malaysia
Japan
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
FY'10
FY'11
FY'12
FY'13
FY'14
All ratios are based on weighted average of SNL-covered companies in the respective regions.
Weighted based on each company’s total assets.
Source : SNL Financial
Market Research & Analysis
10
2015 China Banking Report
Distribution of NPLs of commercial banks by industry, FY’13
Industries
Manufacturing
Wholesale and retail trade
Personal loans (excluding personal business loans)
Transport, storage and post
Agriculture, forestry, animal husbandry and fishing
Real estate
Production and supply of electricity, gas and water
Construction
Others
Total
Outstanding balance (CN¥B)
214.98
170.04
63.96
32.39
26.39
21.44
13.70
12.86
34.69
590.45
NPL ratio (%)
1.79
2.16
0.53
0.68
2.27
0.48
0.51
0.50
CN¥ = Chinese yuan
Source: China Banking Regulatory Commission Annual Report 2013
According to a Feb. 13 China Banking Regulatory Commission report, credit risks at Chinese
banks continued to increase through 2014, with nonperforming loans at the country’s commercial banks increasing by 250.6 billion yuan to 842.6 billion yuan from the previous year. The
regulator said, however, that banks’ asset quality was still under control.
On April 13, Fitch Ratings said it does not expect Chinese banks to see a significant improvement in earnings in 2015 as deteriorating asset quality and net interest margins create challenges.
Click here for more industry news on China.
Market Research & Analysis
11
2015 China Banking Report
Regulatory environment
The PBOC was created on Dec. 1,
1948, through the consolidation
of Huabei Bank, Beihai Bank and
Xibei Farmer Bank. In September
1983, the State Council decided
to recognize PBOC as the central
bank of the country, allowing the
institution to play a more vital role
in areas including the enforcement of laws, formulating monetary and fiscal policies and administering the circulation of yuan.
The PBOC still needs to report its
decisions on annual money supply, interest rates, exchange rates
and other important matters to
the State Council for approval before implementing changes. The
PBOC is also required to submit a
report to the Standing Committee
of the National People’s Congress
on monetary policy and the performance of the financial industry. The PBOC is entirely funded
by the state.
Basel III common equity Tier 1 ratio at select large
Asia-Pacific banks
CET 1 ratio (%)
Company (trading symbol-exchange)
Australia
Bendigo & Adelaide Bank Ltd. (BEN-ASX)
Commonwealth Bank of Australia (CBA-ASX)
Suncorp-Metway Ltd.
China
Agricultural Bank of China Ltd. (1288-HKG)
Bank of China Ltd. (3988-HKG)
China Construction Bank Corp. (0939-HKG)
Industrial & Commercial Bank of China Ltd. (1398-HKG)
Japan
Mitsubishi UFJ Financial Group Inc. (8306-TKS)
Mizuho Financial Group Inc. (8411-TKS)
Sumitomo Mitsui Financial Group Inc. (8316-TKS)
Malaysia
CIMB Group Holdings Bhd. (1023-KLSE)
Malayan Banking Bhd. (1155-KLSE)
Public Bank Bhd. (1295-KLSE)
South Korea
Hana Financial Group Inc. (086790-KRX)
Industrial Bank of Korea (024110-KRX)
KB Financial Group Inc. (105560-KRX)
NongHyup Bank
Shinhan Financial Group Co. Ltd. (055550-KRX)
Woori Bank (000030-KRX)
2014Y
YOY
Change
2013Y
(bps)
8.14
9.23
8.81
7.86
8.54
8.16
28
69
65
9.09
10.61
12.12
11.92
9.25
9.69
10.75
10.57
-16
92
137
135
10.72
9.25
11.17
11.16
8.76
9.98
-44
49
119
10.10
11.75
11.33
8.00
11.25
9.28
210
50
205
9.18
8.21
13.19
10.99
10.40
8.96
8.63
8.12
12.78
11.52
10.03
7.39
55
9
41
-53
37
157
Limited to SNL-covered banks headquartered in the Asia-Pacific region and whose reported capital
adequacy method was Basel III in December 2014.
CET 1 ratios shown are based on local regulatory requirements, including any transitional
arrangements, under Basel III. When data was unavailable, reported pro forma CET 1 ratios under
final Basel III rules were used.
Financial data is based on public filings.
CET 1 = common equity Tier 1
Source: SNL Financial
China is in the process of incorporating Basel III rules in bank reporting requirements. All big
Chinese banks reported healthy common equity Tier 1 capital ratios under Basel III. Agricultural Bank of China was alone among the four largest banks in the country in reporting a CET 1
ratio lower than 10%, although the figure was still above the minimum requirement for 2014.
Click here to learn more about Chinese regulatory organizations and here for banking sector regulations.
Market Research & Analysis
12
2015 China Banking Report
Major players
The four largest Chinese banks accounted for almost 40% of total assets in the industry in 2014,
but the country’s slowing growth has made an impact. Total assets at Agricultural Bank of China
and Bank of China shrank in the second half of 2014, while increasing about 2% at ICBC and
China Construction Bank.
Slowing growth also affected profitability at the institutions; ROAAs of all four banks declined
in the final quarter of 2014 from the year-ago period. ICBC, the country’s largest bank, saw the
0px
130pxof 13 basis
230px points
330px
430px
660px
biggest decline
among the
big four540px
as of Dec. 31,
2014.
Loans at the big four grew by 3.641 trillion yuan, or 11.24% in 2014. Agricultural Bank of China,
Bank of China and ICBC all boosted net loans by more than 10% in 2014.
45.36
44.36
41.41
38.46
Q4'13
36.70
Q4'14
27.02
Q3'14
48.41
Q2'14
50.60
Q1'14
53.43
Q4'13
28.33
Q4'14
37.53
55.35
Q3'14
59.64
72.36
Q2'14
64.88
74.80
Q1'14
65.78
73.30
Q4'13
38.18
57.12
Net income (CN¥B)
Q1'14
Q2'14
Q3'14
Q4'14
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
9.68
10.13
10.39
10.60
10.77
8.36
8.68
8.95
9.10
9.22
6.90
7.22
7.50
7.65
7.74
7.44
7.98
8.24
8.26
8.30
Total net loans (CN¥ trillion)
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Q4'13
Q1'14
Q2'14
Q3'14
Q4'14
Total assets (CN¥ trillion)
18.92
19.73
Q4'13
Q1'14
2.52
Q2'14
Q3'14
20.61
Q4'14
2.63
2.54
1.50
1.52
20.15
2.50
2.46
NIM (%)
1.21
20.30
13.12
0.94
Q4'13
0.97
Q1'14
Q4'13
2.76
1.67
1.09
14.20
14.53
1.13
1.06
Risk-based
capital ratio (%)
13.34
NPLs/loans (%)
Q3'14
Q4'14
0.99
Q4'13
16.74
Q2'14
2.70
1.60
Q1'14
2.75
Q4'14
14.56
15.32
Q4'13
Q1'14
2.78
NIM (%)
15.96
15.97
Q3'14
Q4'14
Q2'14
2.78
1.43
0.90
2.87
1.21
0.77
1.19
11.86
11.87
11.89
NPLs/loans (%)
1.04
NPLs/loans (%)
Q4'14
1.22
Q4'13
1.22
1.24
Q1'14
Q2'14
12.38
12.82
15.43
15.25
Q1'14
Q2'14
Q3'14
Q4'14
2.21
2.19
2.22
2.24
15.11
Q4'13
2.29
NIM (%)
1.12
0.68
Risk-based
capital ratio (%)
14.87
1.13
Q3'14
2.77
15.47
13.87
ROAA (%)
1.44
13.89
Q2'14
2.83
16.01
1.29
14.53
13.50
1.02
Q3'14
16.74
2.83
ROAA (%)
1.01
0.99
Q2'14
Q1'14
16.40
NIM (%)
2.67
13.67
13.22
16.14
1.43
ROAA (%)
Risk-based capital
ratio (%)
15.36
1.30
1.21
ROAA (%)
Risk-based capital
ratio (%)
12.46
1.12
1.05
13.87
13.07
12.41
1.18
12.05
1.07
1.29
Q3'14
1.54
0.96
Q4'14
Q4'13
0.98
Q1'14
1.02
NPLs/loans (%)
Q2'14
Q3'14
Q4'14
Financial data is based on publicly available filings.
Net income represents
the portion
net income
attributable
to equity holders of the parent company.
Financial
data is based
on of
publicly
available
filings.
Total income
net loans represent
total loans
financeof
leases
including thoseto
held
for sale.holders
The value is
of unearned
discount and loan-loss reserves and does not include interest receivable on loans.
Net
represents
the and
portion
netoutstanding,
income attributable
equity
ofnet
the
parent company.
NPL/loans is taken as reported by the company or, where not available, calculated as a sum of loans classified as substandard, doubtful and loss or represented by loans classified as impaired.
Total
net loans
CN¥ = Chinese
yuan represent total loans and finance leases outstanding, including those held for sale. The value is net of unearned discount and loan-loss reserves and does
include
interest
Source: SNL
Financial receivable on loans.
Credit: Cat VanVliet
NPL/loans
is taken as reported by the company or, where not available, calculated as a sum of loans classified as substandard, doubtful and loss or represented by loans
not
classified as impaired.
CN¥ = Chinese yuan
Source: SNL Financial
Credit: Cat Weeks
Market Research & Analysis
13
2015 China Banking Report
Five of the top 15 Chinese banks held more than US$1 trillion in total assets as of the end of
2014, while another five had between US$500 billion and US$1 trillion in assets. Thirteen of the
biggest 15 had NPL ratios of more than 1%.
Top 15 Chinese banks by assets
Rank
1
Company
Industrial & Commercial Bank of China Ltd.
Total assets
(US$B)
3,319.05
ROAA Loans/deposits
(%)
(%)
1.40
67.51
NPL/total net
loans
(%)
1.13
Tangible equity/
tangible assets
(%)
7.32
2
China Construction Bank Corp.
2,696.49
1.40
71.50
1.19
7.37
3
Agricultural Bank of China Ltd.
2,572.49
1.18
61.75
1.54
6.30
4
Bank of China Ltd.
2,456.10
1.17
76.24
1.18
7.67
5
Bank of Communications Co. Ltd.
1,009.45
1.11
82.19
1.25
7.53
6
China Merchants Bank Co. Ltd.
762.02
1.21
74.04
1.11
6.40
7
Industrial Bank Co. Ltd.
709.61
1.20
68.32
1.10
5.91
8
Shanghai Pudong Development Bank Co. Ltd.
675.72
1.22
72.49
1.06
6.27
9
China CITIC Bank Corp. Ltd.
666.52
1.02
74.68
1.30
6.41
10
China Minsheng Banking Corp. Ltd.
646.60
1.28
72.90
1.17
6.05
11
China Everbright Bank Co. Ltd.
440.77
1.11
71.22
1.19
6.48
12
Ping An Bank Co. Ltd.
352.11
0.94
65.46
1.02
5.43
13
Hua Xia Bank Co. Ltd.
298.19
1.02
70.30
1.09
5.51
14
Bank of Shanghai Co. Ltd.
191.23
1.07
65.16
0.98
6.22
15
Chongqing Rural Commercial Bank Co. Ltd.
99.67
1.18
57.00
0.78
6.78
1,126.40
1.17
70.05
1.14
6.51
Average
List is limited to SNL-covered banks headquartered in China.
Financial data is for the year ended Dec. 31, 2014.
Source: SNL Financial
Among the five banks with market capitalization of more than US$1 trillion, Bank of China’s
stock performed the best with a total return of 74.33% since the beginning of 2013 through
April 27, 2015, compared to gains of less than 50% in shares in the other four companies. Only
Agricultural Bank of China lagged behind the SNL Large Cap Asia-Pacific Bank Index, as its share
price climbed 27.73%, compared to 33.28% for the index.
Market performance of largest Chinese banks since 2013 (%)
(%)
80
Industrial & Commercial Bank of China Ltd. (35.74%)
Agricultural Bank of China Ltd. (27.73%)
Bank of Communications Co. Ltd. (46.72%)
China Construction Bank Corp. (34.21%)
Bank of China Ltd. (74.33%)
SNL Large Cap Asia-Pacific Bank (33.28%)
60
40
20
0
-20
-40
01/01/13
04/01/13
07/01/13
10/01/13
01/01/14
04/01/14
07/01/14
10/01/14
01/01/15
04/01/15
SNL Asia-Pacific Bank Index comprises banks headquartered in the Asia-Pacific region and covered by SNL.
Total return data is shown for the shares traded on the Stock Exchange of Hong Kong.
Source: SNL Financial
Market Research & Analysis
14
2015 China Banking Report
Shadow banking
There have been concerns over growing lending by nonbank financial institutions in China over
the past few years. Unlike a decade ago, credit can now be readily obtained through a range of
financial intermediaries, such as trusts, leasing companies, credit-guarantee outfits and moneymarket funds, all collectively known as shadow banks.
Traditional bank lending still takes a bigger piece of the pie, but shadow lending has grown at a
rapid pace over the past five years, according to an OECD survey. Recently, the cap on bank deposit rates and loan-to-deposit ratio regulations has driven investors to look for higher-yielding
options. Although not all shadow bank lending is substandard, such transactions raise concerns
over financial stability.
Shadow banking presence in China
(%)
45
30
40
(CN¥ trillion)
25
35
30
20
Financial leasing
Interbank entrusted loan payments
25
15
20
15
10
10
5
0
Small loan companies
5
FY'10
FY'11
FY'12
FY'13
0
Bankers' acceptances
Trust loans
Entrusted loans
Shadow banking loans/GDP (%)
Shadow banking loans include those within each category shown in the graph.
Source: People’s Bank of China
According to PBOC data, shadow banking loans accounted for 30.09% of China’s nominal GDP in
2010, but this percentage increased to 42.46% at the end of 2013. Such loans increased by more
than 124% to 24.95 trillion yuan at the end of 2013 since 2010. Almost 34% of shadow lending
was categorized as “entrusted” loans a type of loan organized by an agent bank between borrowers and lenders.
Market Research & Analysis
15
2015 China Banking Report
Free trade zones and Shanghai-Hong Kong stock connect
Trading activity is expected to get a boost from three new free trade zones, which followed the
introduction of a pilot free trade zone in Shanghai in September 2013.
Operations in the new FTZs in Tianjin city and the provinces of Guangdong and Fujian began
April 21, 2015, according to the State Council of China, indicating that the world’s second largest economy is moving further away from its traditional export-dependent model. The establishment of new free trade zones is aimed at attracting more foreign investment and boosting
international trade in goods and services.
The Shanghai-Hong Kong Stock Connect, which was implemented in November 2014 to give
investors in China and Hong Kong mutual access to stocks in the markets, is another example
of the country’s efforts to attract foreign investors. According to a report compiled by Goldman
Sachs, the program has created one of the largest stock markets globally.
Market Research & Analysis
16
2015 China Banking Report
Q1'14
15.32
Q1'14
38.46
41.41
44.36
45.36
36.70
27.02
48.41
50.60
Q2'14
Q3'14
Q4'14
Q4'13
Q1'14
Q2'14
Q3'14
Largest branch networks
in China
Total population: 1.36 billion
Name Total domestic branches
Branches per million citizens
Agricultural Bank of
China Ltd. 22,969
8.30
8.26
8.24
7.98
7.44
7.74
In Shanghai, ICBC has the largest presence with 443 depository branches, followed by Agricultural Bank of China with
418 branches and Shanghai Rural Commercial Bank Co. Ltd.
Q2'14 Q3'14 Q4'14
Q4'13
Q1'14 Q2'14 Q3'14 Q4'14
with 403 branches. Combined with China Construction Bank
Corp. with 358, Bank of Shanghai Co. Ltd. with 231 and Bank
of China Ltd. with 221, the six banks
operate almost three16.01
15.47
15.97
15.96
15.43
15.25
15.11
13.87 branches in the metropolitan area.
fourths of SNL-covered
7.65
7.22
Q1'14
Agricultural Bank of China operates China’s largest domestic
branch network with 22,969 depository outlets as of April 27,
Q2'14 Q3'14 Q4'14
Q4'13
Q1'14 Q2'14 Q3'14 Q4'14
according to SNL data.
ICBC
was No. 2 with 16,173 branches
in China.
7.50
53.43
Bank branching
Q4'14
2.24restrictions on
On Dec. 20, 2014, the
State
relaxed
2.22
2.21 Council
2.19
2.29
2.78
2.77
2.87
the
establishment
of
branches
by
foreign
banks. Starting
NIM (%)
%)
1.43
1.21
1.30 foreign banks can handle yuan
Jan.
under new rules,
1.21
1.29 1, 2015,
1.12
1.12
1.05 year, an easROAA
transactions
after operating
in(%)China for one
ROAA
(%)
ing from the previous
minimum requirement of three years.
0.68
13.87
Risk-based
Risk-based
13.07
Further, a rule requiring
two capital
consecutive
years
of profit was
ratio (%)
capital ratio (%)
12.46
12.82
12.41
1.18
scrapped.
12.38
16.94
Industrial and Commercial
Bank of China Ltd. 16,173
11.93
2.83
11.87
12.05
11.89
NPLs/loans (%)
1.22
1.24
Q1'14
Q2'14
China Construction
Bank Corp. 13,275
9.79
Bank of China Ltd. 10,380
7.65
1.07
1.29
Q3'14
1.54
0.96
Q4'14
Q4'13
1.02
0.98
Q1'14
NPLs/loans (%)
Q2'14
nt and loan-loss reserves and does not include interest receivable on loans.
and loss or represented by loans classified as impaired.
Market Research & Analysis
Q3'14
Q4'14
Network
information
built
basis
Network
information
built
onon
thethe
basis
of of
individual
individual
branch
disclosure
from bank
websites.
branch
disclosure
from
bank websites.
Excludes
units
Excludesasunits
classified as non-depositories
by
classified
non-depositories
by SNL. Data is shown
Data is shown
theand
topincludes
level entity
level
at SNL.
the top-level
entity at
level
branch
and it includes
branch network
of all majority
network
of all majority-owned
subsidiaries
in the
owned subsidiaries in the region.
region.
Source:
SNL
Financial
Source:
SNL
Financial
Credit:
Cat
Weeks
Credit:
Cat
VanVliet
17
2015 China Banking Report
Market Research & Analysis
18
2015 China Banking Report
Deal activity
Chinese banks have been targets in 26 stake sales since Jan. 1, 2011. In the latest deal, an undisclosed institutional investor group on Feb. 13, 2015, purchased a 5.00% stake in Fujian-based
Industrial Bank Co. Ltd. for US$2.04 billion. China Construction Bank has been the target in six
deals since Jan. 1, 2011, involving a total stake of 9.94% worth US$16.36 billion. The last deal was
the US$1.47 billion acquisition of a 0.80% stake by an undisclosed buyer on Sept. 3, 2013.
According to Forbes, China has been home to the largest overseas deals in the recent past. This
trend is expected to increase in 2015. The increase in overseas investment is in line with the
country’s “One Belt, One Road” initiative, which plans to introduce a pair of economic belts which
are directed toward China’s business focus. The first of the two, known as Silk Road Economic
Recent M&A transactions in China’s banking sector
Announced since Jan. 1, 2011
Buyer
country
Anncmnt
date
02/10/15
Equity
stake
Deal
Completion acquired
value
date
(%)
(US$M)
02/13/15
5.00 2,037.42
Target
Industrial Bank Co. Ltd.
Buyer
Undisclosed institutional investors
China CITIC Bank Corp. Ltd.
UBS AG
Switzerland 01/23/15
03/12/15
4.90 1,691.74
China Minsheng Banking Corp. Ltd.
Anbang Insurance Group Co. Ltd.
China
01/20/15
01/20/15
0.93
379.54
China Merchants Bank Co. Ltd.
Anbang Insurance Group Co. Ltd.
China
12/31/14
12/31/14
0.71
468.03
Bank of Xi'an Co. Ltd.
Tang West Market Cultural Industry
China
Investment Group Co. Ltd.
09/24/14
Pending
21.00
366.82
Hua Xia Bank Co. Ltd.
Evergrande Real Estate Group Ltd.
China
01/24/14
01/24/14
4.52
545.66
Bank of Shanghai Co. Ltd.
Banco Santander SA
Spain
12/10/13
12/25/13
7.20
642.34
China Merchants Bank Co. Ltd.
Anbang Property & Casualty
Insurance Co. Ltd.
China
12/10/13
12/10/13
4.49 2,252.56
China CITIC Bank Corp. Ltd.
CITIC Group Corp.
China
10/17/13
10/21/13
5.10 1,277.61
China Minsheng Banking Corp. Ltd.
Institutional investors
09/18/13
09/18/13
0.35
China Construction Bank Corp.
Undisclosed buyer
09/03/13
09/03/13
0.80 1,470.13
06/26/13
06/26/13
0.15
05/20/13
05/20/13
Industrial and Commercial Bank of China Ltd. Temasek Holdings Pte Ltd.
Singapore
Industrial and Commercial Bank of China Ltd. Investor group
Industrial and Commercial Bank of China Ltd. Undisclosed buyer
124.28
74.74
NA 1,122.97
01/28/13
01/28/13
0.40
997.19
First Sino Bank
Fubon Financial Holding Co. Ltd.
Taiwan
12/27/12
01/07/14
80.00
933.44
Bank of China Ltd.
Capital Group Cos. Inc.
USA
09/03/12
09/03/12
1.01 1,255.53
Bank of China Ltd.
Undisclosed buyer
05/02/12
05/02/12
1.10 1,242.24
China Construction Bank Corp.
Undisclosed buyer
05/02/12
05/02/12
0.64 1,243.09
04/16/12
04/16/12
04/16/12
04/16/12
1.02 2,309.26
Industrial and Commercial Bank of China Ltd. Investor group
Industrial and Commercial Bank of China Ltd. Temasek Holdings Pte Ltd.
Singapore
NA
200.00
Shanghai Pudong Development Bank Co.
China Pacific Insurance (Group) Co.
China
Ltd.
03/18/12
03/18/12
2.71
China Construction Bank Corp.
China Investment Corp.
China
11/14/11
11/14/11
1.15 1,750.00
China Construction Bank Corp.
Temasek Holdings Pte Ltd.
Singapore
11/11/11
11/11/11
1.56 2,387.79
China Construction Bank Corp.
Investor group
08/29/11
09/02/11
5.23 8,298.34
Bank of China Ltd.
Undisclosed buyer
07/07/11
07/07/11
1.86 2,419.78
China Construction Bank Corp.
Undisclosed buyer
07/05/11
07/05/11
0.56 1,208.53
666.56
Limited to SNL-covered deals involving China-based banks as targets, comprising sales of stakes greater than 10% or transactions larger than US$50 million. Excludes branch
or asset deals.
Deal metrics shown as of announcement for pending deals and as of completion for completed deals.
NA = not available
Source: SNL Financial
Market Research & Analysis
19
2015 China Banking Report
Zone, begins in China’s former western capital of Xi’an, passes through West and Central Asia,
and ends in Europe. The other, so-called 21st Century Maritime Silk Road, follows through the
Strait of Malacca, west Myanmar, Bangladesh, Sri Lanka and East Africa.
The initiative is backed by almost one-third of the world’s countries and is designed to increase
diplomatic coordination, link trade facilities, create free trade zones and promote beneficial cooperation.
Click here for general M&A rules in the country.
Capital markets
Common stock offerings by Chinese banks
Completed since Jan. 1, 2012
SNL data shows that there have been
33 common stock offerings by Chinese
banks since 2012, 16 of which were in
2012, 14 in 2013 and three in 2014. There
has been no offering since the beginning
of 2015.
Bank of Communications raised US$8.92
billion in two common stock offerings in
August 2012, the most for any Chinese
bank since the beginning of 2012.
Questions? [email protected]
+44 20 7398 0873 (EMEA)
Market Research & Analysis
Issuer
Bank of Ningbo Co. Ltd.
Fudian Bank Co. Ltd.
Harbin Bank Co. Ltd.
Bank of Jiangsu Co. Ltd.
Bank of Wenzhou Co. Ltd.
Ping An Bank Co. Ltd.
Bank of Shanghai Co. Ltd.
China Everbright Bank Co. Ltd.
Huishang Bank Corp. Ltd.
Bank of Chongqing Co. Ltd.
China Merchants Bank Co. Ltd.
China Merchants Bank Co. Ltd.
Zhejiang Chouzhou Commercial Bank Co. Ltd.
Guangdong Nanyue Bank Co. Ltd.
China Zheshang Bank Co. Ltd.
Bank of Kunlun Corp. Ltd.
Xiamen International Bank Co. Ltd.
Bank of Hebei Co. Ltd.
Industrial Bank Co. Ltd.
Zhejiang Chouzhou Commercial Bank Co. Ltd.
Xiamen International Bank Co. Ltd.
Longjiang Bank Corp.
Guangdong Nanyue Bank Co. Ltd.
Hankou Bank Co. Ltd.
DONGYING BANK Co. Ltd.
Bank of Wenzhou Co. Ltd.
Bank of Communications Co. Ltd.
Bank of Communications Co. Ltd.
Ping An Bank Co. Ltd.
Harbin Bank Co. Ltd.
Guangdong Nanyue Bank Co. Ltd.
China Minsheng Banking Corp. Ltd.
Bank of Beijing Co. Ltd.
Total
Completion
date
09/29/14
07/31/14
03/25/14
12/31/13
12/31/13
12/31/13
12/25/13
12/13/13
11/05/13
10/31/13
09/19/13
09/03/13
07/19/13
06/30/13
06/06/13
05/10/13
01/29/13
12/31/12
12/31/12
12/31/12
12/29/12
12/19/12
12/14/12
10/10/12
09/30/12
09/28/12
08/24/12
08/22/12
08/16/12
06/30/12
05/31/12
03/26/12
03/09/12
Gross
amount
offered
(US$M)
502.9
655.7
1,130.4
1,065.4
138.1
2,441.7
1,076.0
3,205.3
1,368.3
530.4
1,025.0
4,496.9
143.5
52.1
503.2
309.1
189.3
496.6
3,796.5
100.4
162.7
205.3
141.7
367.9
83.7
105.1
4,235.4
4,685.4
3,140.2
462.6
167.6
1,443.0
1,874.5
40,301.9
Covers offerings by publicly traded and SNL-covered parent companies or subsidiaries
classified as banks or thrifts. Excludes offerings that generated less than US$1 million in
gross proceeds.
Gross amounts offered included exercised overallotments.
Source: SNL Financial
+852 5808 1882 (Asia-Pacific) +1.866.296.3743 (Americas)
20