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Analysis EO
Nov 10, 2020 12:01 am ·

2020 3Q Results: Banking Industry Meets Expectations

By end of October, all A-share listed banks released their third quarter financial results. These show that: ►...profitability has been recovering with the rebounds of the net income growths.  ►Most of the banks achieved positive asset growth during the nine-month period. ►The industry is still suffering from the consequences of the pandemic, with an increasing non-performing loan ratio, but several strong performers also exist.  ►The operations seem good as more retail clients started using banking services.  Financials: Rebounding after the downturn Actively fighting with the aftermath of the COVID-19 pandemic, banks in China are in a recovery period, with profitability significantly improved. Six state-owned banks, representing the trend of the entire industry, posted encouraging financial results during the third quarter of 2020, narrowing the negative net income growth and posting positive revenue increase. Among all the 51 public banks, 33 saw revenue numbers rise, with four of them surpassing 20%.  China Merchants Bank, one of the largest city commercial banks in China, reported a 10.95% revenue increase in the retail business, took up 58.04% of the total figure. The net interest margin (NIM) rose month-over-month by 9 bps to 2.61% during the third quarter, led by the increased percentage of the high-return assets because of the recovery growth. The stricter cost control also contributed to better financials by improving the deposit structure. In the nine-month period, the non-interest income also ran up by 3.96%, took up 34.3% of the total revenue.  Ping An Bank, a rising star in China's banking industry, posted a 13.2% growth in revenue during the first three quarters of 2020. Even though it significantly raised the standard for recognizing the non-performing loan and impairment losses, which caused a 5.2% decrease in the net income to be more conservative, the figure also narrowed from the first half of the year. The operating income before the recognition reported a 16.2% raise, and the non-interest net income ran up 12.9%, led by the fund and trust business. China Minsheng Bank reported revenue of CNY 143.32 billion and NIM 2.14% with the improvement of 7.66% and 6 bps, respectively. The cost ratio was controlled by 0.59% down.  The common increase in the impairment losses among the entire banking industry is expected to go down to push back the profitability, as the pandemic fades along with the state's fiscal income support.  Assets: Increasing scale with improving quality All of the 51 public banks reported expansions in asset scale, with 14 of the figures entered the double-digit territory. Most of them clustered in the region that has at least 8.4% growth during the nine-month period in 2020 and a positive increase in the third quarter.  Among them, Ping An Bank led the industry in the single quarter from June to September, while China Construction Bank represents the top level of the state-owned banks with an overall highest growth from January to September.  The expanding asset scale, which mainly led by the increasing loan outstanding, also pushed their non-performing loan (NPL) up. Though banks are still suffering from the credit issue caused by the pandemic, things are getting better. City commercial banks performed better than the state-owned ones, with several of them controlled the NPL ratio down.  Among them, Ping An Bank improved the NPL ratio by 0.33%, leading the entire industry. Its NPL balance also went down by 11% compared to the end of 2019.  China Merchants Bank also achieved an improvement on low-quality loans, with the NPL ratio by 0.04%, the balance of loans past due decreased by 0.75%.  China Minsheng Bank experienced some trouble in 2020. Not only reflected as the shrinking asset scale, but its asset quality is also getting worse with the NPL ratio ran up by 0.27%, which is considered the top-level among all public banks. In general, we can see the banking industry in China has been gradually recovering from the downturn. Operation: decreasing unbanked population  With disposable income rising in China, more of the population has been using banking services, especially for private banking and high-end services. It can be seen reflected in the operating results from two retail giants, China Merchants Bank (CMB) and Ping An Bank (PAB).  For CMB, the pioneer of the retail banking service provider, had its individual clients increased 7.65% in the nine-month period, among which the high-end clients, named 'Golden Sunflower' (Chinese: 金葵花), with daily investment assets over CNY 500,000 ran up by 13.80%. The asset under management (AUM) of Golden Sunflower customers rose by 16.40%, surpassed the growth of the number of clients, marks a per capita incremental expenditure on banking services. The AUM of its private bank also went up by 19.15%.  For PAB, the year 2020 is the inception of its new operation strategy, to further deploy in the retail business, and to continue to increase risk management, and build a banking ecosystem. The total AUM grew by 25.5% by September 30 compared to the end of 2019. The client base in the private banking sector reached a growth of 26.3% in the nine-month period, and the AUM in the sector surged by 43%. In the future, it aims to reach CNY 2 trillion on the AUM of the private bank in two years. The Bottom  To sum up, some banks have indeed recovered fast from the adverse impacts of the pandemic, but in general, the performance of the banking industry is keeping up with market expectations.  

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Oct 21, 2020 09:58 pm ·

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Oct 19, 2020 02:59 pm · IT Home

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Analysis EO
Analysis · 2
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Analysis EO
Sep 13, 2020 10:50 pm ·

Scanning China's Micro-Financing Market by Replaying Minsheng’s History

► The vast market began to be explored in 2007 by commercial banks, then experienced fluctuations over the next five years – and is now thriving.  ► The Chinese government is paying more attention to micro-financing, with stronger supports and stricter regulations. In China, at the inception of 2019, medium to small and micro-businesses held over 90% of the market, contributing over 80% of the employment, 70% of the patents applied, 60% of the GDP and 50% of the tax income, according to the People’s Bank of China. They are a crucial part of China's economy.  However, in the past, they lacked attention from the state, which often left them in a tricky situation, with difficulties in financing – therefore, they had an average lifespan of only three years. According to the World Bank, CNY 17.4 trillion in financing needs were filled in China for small and micro-businesses in 2018, accounting for over 57% of total demand, among which a majority went to small to medium businesses (SMB) with 1% left for micro-businesses. Also, two-fifths of the needs were dealt with in the private sector.  Fortunately, in the past decades, the financial institutions, especially commercial banks, have been evolving in this respect. The development path of China Minsheng Bank (CMSB), the originator of 'micro-finance,' could be a reflection of the growth in China's micro-financing market.  Opening: The vast market starts to be explored  The financing business first started online in 2007, as the P2P platforms evolved, such as PPDai and Yirendai, as well as e-commerce giant, Alibaba. The lending expanded to the small enterprises thereafter, as Alibaba teamed up with China Construction Bank to first introduce a financing product with four merchants from Alibaba’s platform receiving CNY 1.2 million funds.  The product kicked off the policy of official support from the state on the micro-lending business. And the banking sector, which represents the state, began to march towards the vast market. In 2008, CMSB first introduced 'micro-finance,' and the term has been adopted by the government since then. 'ShangDaiTong' (commercial loans, Chinese: 商贷通), the star product developed by CMSB, became the sample and benchmark for commercial banks thereafter. In order to understand the market, CMSB researched 16 cities in China with over 30 targeted business communities. The results showed that over 83% of the financial needs of SMBs are dealt with help from relatives and friends, 67% of which sums were under CNY 1 million, and 86% were under one-year's maturity. CMSB realized that it was a high hurdle and the complex process of banks' lending impeded them.  The product hit the market with a wild energy. From 2008 to 2012, CMSB helped ten thousands of small to micro-businesses to resist the financial crisis. At the end of 2010, the total lending amount of ShangDaiTong reached CNY 150 billion with a year-over-year surge of 255%. In 2009, the Chinese government launched a four-trillion-project to help the economy revive after the crisis, which also brought some hidden troubles. The financing demands of medium to small and micro-businesses had pressurized, and the risks were revealed in 2012. With a large number of small enterprises going bankrupt, some commercial banks, led by CMSB, went into a downturn in micro-financing exploration. The business scale started to shrink.  Increasing competition among players  In the next few years, the situation of CMSB got even worse.  Since 2010, with Ant Business Credit (former Alibaba Business Credit) established, many large Internet companies have entered financial lending fields, such as Suning (002024:SZ), JD.com (JD:NASDAQ), and Tencent (00700:HK). Normally, an abundance of players makes the market competition fiercer.  The largest followers of CMSB in the space, such as China Merchants Bank and Ping An Bank, launched retail-transformation, subdivided the lending business, making micro-enterprises an individual section. While even still leading the market in scale, CMSB experienced negative growth in the credit lending scale for two consecutive years, which began in 2014, partially caused by the establishment of Alibaba's MYbank and Tencent's WeBank in the two years, which also focuses on providing financing support to SMBs. Banks and states have both realized that the raw operation model needed to be changed as the market is getting larger. CMSB built a risk management team to control the non-performing loans and refined the entire company, and the business started to approach professionalism. At the same time, the state started to implement stricter supervision with increasing support as well. The China Banking and Insurance Regulatory Commission (SBIRC) started to release the financing situation for small and micro-enterprises in 2015, and narrowed to micro-businesses with credits under CNY 10 million after 2019. From 2015 to 2018, the lending balance for financial institutions surged by 43%, and the micro-financing ran up by 38% in one year and a half from 2019 to the second quarter of 2020.  A new era for the micro-financing market is coming.  Digital transformation As more internet companies take to the market with advanced technologies, micro-finance is starting its digital transformation.  Since 2017, CMSB has applied a 'digital + technology' strategy to the micro-financing business and expanded it from solely lending to the structure of a comprehensive service that covers the entire lifecycle for medium to small and micro-enterprises, including settlements, wealth, and accounts management. Furthermore, it first achieved the mortgage application and approval process, making it 100% online, and turned the targets from SMBs to micro-businesses. After this, MYbank, an online bank that has focused on micro-lending since the very beginning, teamed up with CMSB on 'contactless lending' with the loans issued fast – in a matter of seconds. As for now, it has cooperated with over 400 financial institutions and offered over CNY 3 trillion to more than 17 million small and micro-enterprises. Now, the micro-financing market is becoming more and more systematic. Businesses with credit of over around CNY 500,000 are taken care by large commercial banks, the financing of relatively small ones with an average loan scale of CNY 30,000 is provided by online banks such as MYbank and WeBank, while the middle zone is filled by some non-banking financial platforms.  Players are competing and also collaborating. Internet companies with technological advancements are cooperating with financial institutions to provide more intelligent services, and banks themselves are also unwavering in their drive to develop and research new technology applications.  In the next few years, the medium to small and micro-businesses are likely to boom and become healthier. This will propel the development of CMSB and the likes.

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