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%.  

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio.

*AIA Needs To Slow It Down: Until recently AIA Group (1299.HK) [AIA] operated just five mainland Chinese provincial licenses. With Hong Kong falling down, mainland China has become AIA’s largest market in 2020, contributing 35% to AIA’s VONB. Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary; and  *Risks Of Aggressive Mainland Push: In addition to the massive managerial distractions with so many deals at one time, there are negative tax implications for mainland Chinese subsidiaries versus branches; challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; getting the BEA Life team on the same with AIA Hong Kong; and potential impairments its USD-based investment portfolio. 

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

Industrial Bank Co Ltd A / Equity Bottom-Up

*Weak 4Q20 Numbers: Industrial Bank (601166.CH) [Industrial] reported fairly disappointing 4Q20 earnings result of CNY 14.8 bn – declining CNY 4.5 bn (23.5%) on a linked quarter basis. From an operating perspective, Industrial struggled this quarter with negative operating jaws, as revenues declined CNY 925 mn (1.8%) whilst expenses increased CNY 3.4 bn (27.2%); and*COVID Credit Hangover Persists: In our view, the stated credit figures far from tell the entire story. Net new NPLs amounted to CNY 20.6 bn or increasing an alarming 145.4% on an annualized basis. When one considers the continued high level break-down in credit quality, reserves would appear to be incredibly light by CNY 36 bn, in our view, which amounts to about two quarters of pre-tax results at Industrial.

*Weak 4Q20 Numbers: Industrial Bank (601166.CH) [Industrial] reported fairly disappointing 4Q20 earnings result of CNY 14.8 bn – declining CNY 4.5 bn (23.5%) on a linked quarter basis. From an operating perspective, Industrial struggled this quarter with negative operating jaws, as revenues declined CNY 925 mn (1.8%) whilst expenses increased CNY 3.4 bn (27.2%); and*COVID Credit Hangover Persists: In our view, the stated credit figures far from tell the entire story. Net new NPLs amounted to CNY 20.6 bn or increasing an alarming 145.4% on an annualized basis. When one considers the continued high level break-down in credit quality, reserves would appear to be incredibly light by CNY 36 bn, in our view, which amounts to about two quarters of pre-tax results at Industrial.    

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

Hong Kong

The Bank of East Asia, Limited and its subsidiaries provide general banking, related financial, business corporate, and investor services.

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Bank of East Asia (23 HK)

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

AIA Group – Headlong Into China

AIA GROUP: Concerned about weakening organic growth, AIA has gone on a deal-making spree, leading to massive managerial distractions. Fundamental...

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

Industrial Bank – Not Out Of The Woods

INDUSTRIAL BANK: Industrial reported a disappointing QOQ 4Q20 earnings decline of 23.5%. Industrial struggled with negative operating jaws, 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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