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

China Merchants Bank H / Equity Bottom-Up

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] announced a poor set of preliminary 4Q20 results, with net profit declining CNY 6.1 bn (22.7%) on a linked quarter basis – this, despite having its tax rate decline 790 bp to 15.6% over the period; and*Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. We note a potential net new NPL increase of CNY 11.4 bn linked quarter for a whopping annualized increase in NPLs of 80.4%. Trouble is brewing in paradise.

*Weak 4Q20 Bottom-Line: China Merchants Bank (3968.HK) [CMB] announced a poor set of preliminary 4Q20 results, with net profit declining CNY 6.1 bn (22.7%) on a linked quarter basis – this, despite having its tax rate decline 790 bp to 15.6% over the period; and*Best Retail Franchise Hitting Credit Wall: While CMB has the best retail franchise in mainland China, credit risk has substantially increased in 4Q20. We note a potential net new NPL increase of CNY 11.4 bn linked quarter for a whopping annualized increase in NPLs of 80.4%. Trouble is brewing in paradise.  

China Merchants Bank – Massive 4Q20 Charge-Offs

Postal Savings Bank of China C / Equity Bottom-Up

*Private Placement Coming: We firmly believe that Postal Savings Bank (1658.HK) [PSBC] will be named a D-SIB which will cause it to face immediate pressures to raise capital, given the unprecedented COVID-19 and failure to deal with their legacy problem assets. To that end, PSBC is raising CNY 30 bn (USD 4.3 bn) through a private placement of shares to parent China Post Group. PSBC aims to close this transaction by the end of 1Q21; and   *Starting Off From A Better Place Than Peer: We view PSBC as one of mainland China’s higher quality financial institutions but we do recognize that credit risks continue to accelerate. At 1H20, we note that credit continues to breakdown at an accelerated pace, as net new NPLs increased CNY 12.1 bn or 57% on an annualized basis. The on-balance defaulted bonds amount to about CNY 500 mn, suggesting a limited impact. Total credit exposure to Yongmei and Henan Energy is CNY 1 bn.

*Private Placement Coming: We firmly believe that Postal Savings Bank (1658.HK) [PSBC] will be named a D-SIB which will cause it to face immediate pressures to raise capital, given the unprecedented COVID-19 and failure to deal with their legacy problem assets. To that end, PSBC is raising CNY 30 bn (USD 4.3 bn) through a private placement of shares to parent China Post Group. PSBC aims to close this transaction by the end of 1Q21; and   *Starting Off From A Better Place Than Peer: We view PSBC as one of mainland China’s higher quality financial institutions but we do recognize that credit risks continue to accelerate. At 1H20, we note that credit continues to breakdown at an accelerated pace, as net new NPLs increased CNY 12.1 bn or 57% on an annualized basis. The on-balance defaulted bonds amount to about CNY 500 mn, suggesting a limited impact. Total credit exposure to Yongmei and Henan Energy is CNY 1 bn.

Postal Savings Bank – D-SIB Spurs Placement

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

There is little evidence of any major economic shutdown in China during early this year. There is also little evidence of the period when China re-opened its economy only to find most all other economies were closed. It was arguably an especially difficult period for China and its banks. Where many banks have now reported their results, it becomes clearer that the numbers hardly reflect crisis - temporary or otherwise. This though is not what really matters; rather it is the implication for profit delta during 2H20.

There is little evidence of any major economic shutdown in China during early this year. There is also little evidence of the period when China re-opened its economy only to find most all other economies were closed. It was arguably an especially difficult period for China and its banks. Where many banks have now reported their results, it becomes clearer that the numbers hardly reflect crisis - temporary or otherwise. This though is not what really matters; rather it is the implication for profit delta during 2H20.

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

China Bohai Bank   / Equity Capital Markets

<a href="https://www.smartkarma.com/entities/china-bohai-bank" target="_blank" data-smartkarma-citation="entities:29034:1" rel="noopener">China Bohai Bank (BOHAIBZ HK)</a> is the youngest nationwide joint-stock commercial bank in China. In 2005, Bohai was established and became the only nationwide joint-stock commercial bank in China that has a foreign bank, <a href="https://www.smartkarma.com/entities/standard-chartered-plc" target="_blank" data-smartkarma-citation="entities:193:1" rel="noopener">Standard Chartered (STAN LN)</a>, as its promoter and founder. Bohai is seeking to raise $2 billion through a Hong Kong IPO, according to press reports. <div class="content-highlight">Overall, our analysis suggests that Bohai’s fundamentals are attractive as the positives (loan book growth, improving operating metrics) far outweigh the negatives (high NPL ratio).    </div>

China Bohai Bank (BOHAIBZ HK) is the youngest nationwide joint-stock commercial bank in China. In 2005, Bohai was established and became the only nationwide joint-stock commercial bank in China that has a foreign bank, Standard Chartered (STAN LN), as its promoter and founder. Bohai is seeking to raise $2 billion through a Hong Kong IPO, according to press reports. Overall, our analysis suggests that Bohai’s fundamentals are attractive as the positives (loan book growth, improving operating metrics) far outweigh the negatives (high NPL ratio).    

China Bohai Bank IPO Initiation: The Bucks Stop Here

The takeover of Baoshang Bank by the government of China is as good a signal as any. All is not well in China banking. Press reports suggest this is the first bank closure in 20 years, which is also telling.  Perhaps the reddest of red flags for this bank was its missing financials for the past two years. We find several other China banks without financial statements, suggesting that this bank may not be alone. Beijing has since highlighted its concerns about high levels of special mention loans (SML) which flatter NPLs. We see many banks in China where SML loans are well over 100% of loss NPLs. The risk to higher credit costs is meaningful.  The negative profit growth shown by six of China’s banks during the latest quarter is another sign of how this can play out.

The takeover of Baoshang Bank by the government of China is as good a signal as any. All is not well in China banking. Press reports suggest this is the first bank closure in 20 years, which is also telling.  Perhaps the reddest of red flags for this bank was its missing financials for the past two years. We find several other China banks without financial statements, suggesting that this bank may not be alone. Beijing has since highlighted its concerns about high levels of special mention loans (SML) which flatter NPLs. We see many banks in China where SML loans are well over 100% of loss NPLs. The risk to higher credit costs is meaningful.  The negative profit growth shown by six of China’s banks during the latest quarter is another sign of how this can play out.

China Banks – Missing Financials, Negative Growth, High Special Mention Loans

Hong Kong

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

Dah Sing Banking Group Limited, through its subsidiaries, provides personal banking, commercial banking, and treasury services.  The Group's operations are primarily based in Hong Kong.

Bank of Tianjin Co. Ltd. operates as a commercial bank. The Company offers deposits, loans, investment banking, currency trading, investment management, credit cards, and other financial services.

Dah Sing Financial Holdings Ltd through its subsidiaries, offers general banking services. The Company also invests in properties and provides insurance broking and nominee services.

Public Financial Holdings Ltd, through its subsidiaries, operates in the deposit taking, personal and commercial lending, credit card, mortgage financing, stockbroking, and property investment businesses.  The Company also provides financing to purchasers of taxis and public light buses, leases taxis, and trades taxi cabs and taxi licenses.

China Taiping Insurance Holdings Company Ltd., through subsidiaries, underwrites life and property/casualty insurance and reinsurance.

Far East Horizon Ltd is a financial services provider. The Company specializes in providing financing solutions through equipment-based financial leasing. Far East currently targets industries that include healthcare, education, infrastructure construction, shipping, printing and machinery industries.

Guoco Group Limited, through its subsidiaries, develops, invests in, and manages properties as well as provides stock, commodity and bullion broking, insurance, and fund management services.

China Development Bank Financial Leasing Co. Ltd. provides financial leasing services. The Company offers aircraft leasing, ship leasing, commercial vehicle leasing, construction machinery leasing, highway leasing, rail transit leasing, new energy leasing, enterprise equipment leasing, urban infrastructure leasing, house leasing, and other services. 

China Development Bank Financial Leasing (1606 HK)

First Pacific Company Limited is an investment holding company with operations located in Asia-Pacific. The Company principally invests in consumer food products, infrastructure, natural resources, and telecommunications.

Bangkok Bank Public Company Limited provides various banking and financial services including commercial, consumer, credit card, and mortgage lending, international trade financing, investment banking, and securities services.

Pinnacle Financial Partners, Inc. is a holding company for Pinnacle National Bank. The Bank operates as a community bank emphasizing personal banking relationships with individuals and businesses located in its primary service area, which is comprised of the metropolitan Nashville, Tennessee area and surrounding counties.

Kasikornbank Public Company Limited provides commercial banking services including personal and commercial banking, international trade, as well as investment banking services, to its customers throughout Thailand.  The Bank has foreign branches in Los Angeles, Hong Kong, Cayman Islands, and Shenzhen; and representative offices in Shanghai, Beijing, and Kunmin.

Krung Thai Bank Public Company Limited is a state-owned commercial bank offering various banking and financial services including commercial, consumer, credit card, and mortgage loans, as well as provident fund management, foreign exchange, and international trade financing services.  The Bank is majority owned by the Financial Institutions Development Fund.

Wintrust Financial Corporation is a multi-bank holding company providing community-based banking services in various suburbs of Chicago, Illinois.  The Banks provide a variety of commercial and personal financial services to individuals, businesses, local governmental units, and institutions.  Wintrust also has a financing services subsidiary and a trust subsidiary.

Bank of India, through its subsidiaries, provides corporate, commercial, personal banking, retail, rural, and development banking.  The Group specializes its services towards corporate and medium businesses, in addition to upmarket retail customers.

Central Bank Of India is a full service commercial bank. The Bank's services include taking deposits, lending services, and investing. Central bank operates branches throughout India.

Hong Leong Bank Berhad provides commercial banking and related financial services.  The Company's services include leasing and hire purchase, nominee, Islamic Banking, and unit trust management.  Through its subsidiaries, the Company also develops and invests in real estate.

Vietnam Joint Stock Commercial Bank For Industry and Trade accepts deposits and offers commercial banking services.  The bank offers corporate and consumer loans; insurance; securities and derivatives brokerage; lease financing; money transfer; credit cards; and other services

Vietnam Joint Stock Commercial Bank For Industry and Trade (CTG VN)

Vietnam Joint Stock Commercial Bank For Industry and Trade

Taishin Financial Holding Co., Ltd. is a holding company. Through its subsidiaries, the Company conducts commercial banking business, such as deposits, loans, discount bills, guarantees, remittances, and foreign exchange transactions.

China Zheshang Bank Co. Ltd. operates as a commercial bank. The Bank offers deposits, loans, international settlement, wealth management and other related financial services.

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China Zheshang Bank (2016 HK)

China Merchants Bank – Massive 4Q20 Charge-Offs

CHINA MERCHANTS BANK: CMB announced a poor set of preliminary 4Q20 results, as profit declined 22.7% QOQ. Credit risk has substantially increased...

Thomas J. Monaco

Postal Savings Bank – D-SIB Spurs Placement

POSTAL SAVINGS BANK OF CHINA: D-SIB Status Spurs Private Placement And Likely A Lower ROE Both From Dilution And Challenged Fundamentals In 2021.

Thomas J. Monaco

China Banks – Muted Profit Delta

The profile for provision expenses and profits at China's banks during 1H20 is wholly different to many others globally.

Daniel Tabbush

China Bohai Bank IPO Initiation: The Bucks Stop Here

China Bohai Bank (BOHAIBZ HK) is the youngest nationwide joint-stock commercial bank in China. In 2005, Bohai was established and became the only...

Arun George

China Banks – Missing Financials, Negative Growth, High Special Mention Loans

The takeover of Baoshang Bank by the government of China is as good a signal as any. All is not well in China banking. Press reports suggest this...

Daniel Tabbush

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