Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

Bank Of Ningbo Co Ltd A / Equity Bottom-Up

*Despite Cost Growth, Bank of Ningbo Pulls One Out: Bank of Ningbo (002142.CH) [Ningbo] reported 4Q20 bottom-line results of CNY 3.8 bn, increasing CNY 304 mn or 8.8% linked quarter. The linked quarter results improvement at Ningbo was driven by several factors: a) revenue improvement of CNY 571 mn (5.6%) and likely driven by loan growth of CNY 32.4 bn (5.0%); b) a CNY 752 mn (31.5%) reduction in loss provisioning; and c) a 6.3% reduction in Ningbo’s tax rate to 7.3%; and*Credit On Solid Footing: Despite the continued accelerated level of net new NPL growth at 83.4% on an annualized, Ninbo has a low base of NPLs.  It’s a good thing that Ningbo remains well-reserved and that credit risk appears quite manageable because capital levels remain somewhat challenged with a CET1 of just 9.5%.

*Despite Cost Growth, Bank of Ningbo Pulls One Out: Bank of Ningbo (002142.CH) [Ningbo] reported 4Q20 bottom-line results of CNY 3.8 bn, increasing CNY 304 mn or 8.8% linked quarter. The linked quarter results improvement at Ningbo was driven by several factors: a) revenue improvement of CNY 571 mn (5.6%) and likely driven by loan growth of CNY 32.4 bn (5.0%); b) a CNY 752 mn (31.5%) reduction in loss provisioning; and c) a 6.3% reduction in Ningbo’s tax rate to 7.3%; and*Credit On Solid Footing: Despite the continued accelerated level of net new NPL growth at 83.4% on an annualized, Ninbo has a low base of NPLs.  It’s a good thing that Ningbo remains well-reserved and that credit risk appears quite manageable because capital levels remain somewhat challenged with a CET1 of just 9.5%.  

Thematic (Sector/Industry)

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value.

*D-SIB Standards Released: The People’s Bank of China (PBOC) and China Bank and Insurance Regulatory Commission (CBIRC) on April 2, 2021 released finalized new capital standards for the country’s domestic systemically important banks (D-SIBs), and indicated that the need for banking  crisis liquidation plans; and* Aggressive Capital Raises Expected: In our view, the forthcoming regulations are likely to focus on: additional paid-in capital; leverage ratios; risk concentrations; corporate governance; disclosure levels; and mechanism to prevent systemic risk; and internal controls. The idea is to finally strengthen mainland Chinese bank balance sheets and improve their loss absorption capacity. Problem for equity raises is that P/BV must be over 1.0x for the raise and many of the potential D-SIBs are trading below book value. 

China Banks – Big Capital Raises Coming

China Citic Bank Corp Ltd H / Equity Bottom-Up

*Poor Result Even Before Provision Cut:China CITIC Bank (998.HK) [CITIC] reported 2H20 results of CNY 23.6 bn, declining CNY 3.6 bn (13.3%) HOH. Unlike other mainland Chinese banks, CITIC gives almost no breakdown of revenues. Nevertheless, the poor HOH results were driven by negative operating jaws as revenues declined CNY 9.2 bn (9.1%) while operating expenses increased CNY 6.6 bn (27.8%); and*Credit Still A Major Challenge: Riskier and chunkier real estate and construction NPLs increased 211 bp and 293 bp HOH, respectively. Further, we note zero reprieve in net new NPL growth at CNY 41.1 bn  - growing 106.9% on an annualized basis – this remains very troubling. We calculate that the accelerated net new NPL growth has caused CITIC to be underprovided for in the neighborhood of CNY 101 bn or nearly a full year of stated PBT.

*Poor Result Even Before Provision Cut:China CITIC Bank (998.HK) [CITIC] reported 2H20 results of CNY 23.6 bn, declining CNY 3.6 bn (13.3%) HOH. Unlike other mainland Chinese banks, CITIC gives almost no breakdown of revenues. Nevertheless, the poor HOH results were driven by negative operating jaws as revenues declined CNY 9.2 bn (9.1%) while operating expenses increased CNY 6.6 bn (27.8%); and*Credit Still A Major Challenge: Riskier and chunkier real estate and construction NPLs increased 211 bp and 293 bp HOH, respectively. Further, we note zero reprieve in net new NPL growth at CNY 41.1 bn  - growing 106.9% on an annualized basis – this remains very troubling. We calculate that the accelerated net new NPL growth has caused CITIC to be underprovided for in the neighborhood of CNY 101 bn or nearly a full year of stated PBT.

China Construction Bank H / Equity Bottom-Up

*Hefty Expense Load In 4Q20: China Construction Bank (939.HK) [CCB] reported 4Q20 results of CNY 65.2 bn, declining CNY 3.0 bn or 4.4% linked quarter. On an operating basis, core earnings declined CNY 4.8 bn (7.5%) linked quarter to CNY 59.1 bn. Results weakness can be attributed to a massive increase in operating expenses and higher taxes; and *Credit Risk Rising: CCB’s While the stated NPL increase in not alarming on its face, the level of net new NPLs – inclusive of NCOs of CNY 27.3 bn – amounted to CNY 32.5 bn or increasing 50.9% on an annualized basis. We also believe that there will be an impact from WMPs. CCB's Non-standard credit asset faced some impact in LGFV and infrastructure. However, when one considers the continued high level break-down in credit quality, reserves would appear to be incredibly light – in the neighborhood of CNY 300 bn which amounts to nearly a year of pre-tax results at CCB.

*Hefty Expense Load In 4Q20: China Construction Bank (939.HK) [CCB] reported 4Q20 results of CNY 65.2 bn, declining CNY 3.0 bn or 4.4% linked quarter. On an operating basis, core earnings declined CNY 4.8 bn (7.5%) linked quarter to CNY 59.1 bn. Results weakness can be attributed to a massive increase in operating expenses and higher taxes; and *Credit Risk Rising: CCB’s While the stated NPL increase in not alarming on its face, the level of net new NPLs – inclusive of NCOs of CNY 27.3 bn – amounted to CNY 32.5 bn or increasing 50.9% on an annualized basis. We also believe that there will be an impact from WMPs. CCB's Non-standard credit asset faced some impact in LGFV and infrastructure. However, when one considers the continued high level break-down in credit quality, reserves would appear to be incredibly light – in the neighborhood of CNY 300 bn which amounts to nearly a year of pre-tax results at CCB.      

China Construction Bank – Still Chunky NPL Increases

Postal Savings Bank of China C / Equity Bottom-Up

*Excess Provisioning Eats Away At 4Q20 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and * Credit Quality Risk Peaking: HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.

*Excess Provisioning Eats Away At 4Q20 Results: Established in 2007, Postal Savings Bank of China (1658.HK) [PSB] is mainland China’s youngest large commercial bank. PSB reported 4Q20 results of CNY 11.4 bn – decreasing CNY 7.8 bn (40.8%) linked quarter. PSB’s struggles were twofold: loss provisions were too high; and an operating expenses accelerated; and * Credit Quality Risk Peaking: HOH, stated NPLs nominally increased CNY 605 mn or 1.2% to CNY 50.4 bn and amount to 88 bp to total loans – flat linked quarter. The growth in level of net new NPLs was CNY 9.3 bn or decelerating to 18.4% on an annualized basis. PSB’s loss provision increased CNY 2.9 bn (41.1%) linked quarter, almost seeming pointless given the reserve cover of 4.01x (4.03x at 3Q20) and the annualized NCO rate of 61 bp.

Postal Savings Bank of China – Excess Provisioning

China

Ping An Bank Co Ltd provides a full range of commercial banking services including RMB and foreign currency deposit, loan, international and domestic settlement, discount, currency trading, letter of credit, bank guarantee, and other related services.

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Ping An Bank Co Ltd A (000001 CH)

Bank of Ningbo – A Good Result

BANK OF NINGBO: 4Q20 bottom-line increased 8.8% linked quarter driven by revenue improvement, a drop in loss provisioning, and a lower tax rate....

Thomas J. Monaco

China Banks – Big Capital Raises Coming

CHINA BANKS: The PBOC and CBIRC released finalized new capital standards for the country’s D-SIBs. Equity raises require P/BV over 1.0x and many of...

Thomas J. Monaco

China CITIC Bank – No Credit Deserved

China CITIC Bank: CITIC reported poor 2H20 results. Poor results were driven by negative operating jaws. Riskier real estate/construction NPLs...

Thomas J. Monaco

China Construction Bank – Still Chunky NPL Increases

CHINA CONSTRUCTION BANK: CCB reported a 4Q20 core earnings results decline 7.5% QOQ. Weakness can be attributed to a massive increase in costs and...

Thomas J. Monaco

Postal Savings Bank of China – Excess Provisioning

POSTAL SAVINGS BANK: PSB reported a 40.8% decline in QOQ results, as loss provisioning was too high relative to risk is peaking; and an operating...

Thomas J. Monaco

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