Banks seek capital to expand
(eastday.com)
Updated: 2004-02-29 09:44

China Minsheng Banking Corp and Shanghai Pudong Development Bank need fresh injection of capital to expand their growing business in China's mainland.

Pudong Bank said on February 27 that it aims to net 6 billion yuan (US$722 million) through the sale of 10-year subordinated bonds this year to enhance its capital base.

"Proceeds from the debt sale will be used to increase our capital adequacy ratio to facilitate our expansion and risk control capabilities," said the Shanghai-listed lender in its 2003 financial report, which is released on February 27.

The capital adequacy ratio of Pudong Bank stood at 8.64 percent at the end of last year, compared with 8.54 percent a year earlier.

Meanwhile, Beijing-based Minsheng plans to float its shares in Hong Kong this year. Its CAR was 8.62 percent at the end of 2003, according to its annual financial report which is also released on February 27.

The Basel Accord, a globally applied bank risk management system, sets a CAR of 8 percent as the minimum requirement for commercial lenders.

China's joint-stock commercial lenders, including Pudong Bank and Minsheng, have been vying to grab a bigger share in the mainland banking market, which is still dominated by the big four state-owned commercial banks.

The two banks intend to set up more outlets and extend more loans in China's fast growing economy.

Shanghai-listed Minsheng posted a 57 percent hike in lending to 201.77 billion yuan (US$24.31 billion) last year from a year earlier, the bank said in its 2003 annual report.

Pudong Bank, in which Citigroup controls a 4.62 percent stake, said its net profit rose by 21.84 percent to 1.57 billion yuan last year from a year earlier.

Minsheng posted a 59.89 percent year-on-year net profit hike to 1.39 billion yuan in 2003.

However, the two banks are expected to post a slower growth in profitability this year compared to last year due to higher costs in operations and expenses incurred in raising new capital.

"Their earnings per share and profit growth in 2004 may mirror that of 2003, and it is a kind of temporary pain that they must bear," said Han Zhenguo, an analyst of Haitong Securities.

Minsheng reported its earnings per share rose 11.76 percent to 0.38 yuan in 2003 from a year earlier. For Pudong Bank, its earnings per share was 0.4 yuan last year, compared with 0.356 yuan in 2002.

Meanwhile, the quality of the two banks' assets is still better than most of their domestic rivals.

The nonperforming loan ratio of Minsheng stood at 1.29 percent at the end of last year, down 0.75 percentage point from the beginning of 2003 while for Pudong Bank, it was at 2.53 percent, a drop of 1.9 percentage points from the beginning of last year.

The average NPL ratio in national commercial banks and policy lenders in China's mainland stood at 17.8 percent at the end of 2003, down 5.32 percentage points from the beginning of last year, said the China Banking Regulatory Commission, the industry regulator.