Guangdong South Sea Commercial Bank's IPO is difficult: net profit down 12.7%, non-performing loans up to 1.49%

Guangdong Rural Commercial Bank of South China updated its prospectus again and continued to queue for A-share IPO, but its performance was worrying. As the largest bank and financial institution in the Pearl River Delta region in terms of number of employees and branch network, and the largest credit and the widest service coverage, Guangdong Rural Commercial Bank of South China has experienced many ups and downs since it started preparing for IPO in 2018. The recent data shows that it is facing the double pressure of sluggish performance growth and declining asset quality.

Profitability Continues to Decline, Net Profit Shrank More Than 20% in Two Years

Guangdong Rural Commercial Bank of South China's profitability has been declining in recent years. According to the prospectus, in 2021-2023, the bank achieved operating income of Rmb59.87bn, Rmb69.86bn and Rmb68.61bn, net profit of Rmb30.43bn, Rmb27.28bn and Rmb23.82bn, and adjusted net profit of Rmb30.15bn, Rmb34.02bn and Rmb25.11bn. The data shows that in 2022 and 2023, the bank's net profit decreased by 10.4% and 12.7% year-on-year respectively, and the overall decrease was 21.7% in two years. At the same time, the bank's net interest rate also declined year by year, from 2.04% in 2021 to 1.72% in 2023. A series of data reflect the severe operating challenges faced by Guangdong Rural Commercial Bank of South China in the current economic environment.

Asset Quality Deteriorates, Non-Performing Loans Rate Continues to Climb

In addition to the decline in profitability, the asset quality of Guangdong Rural Commercial Bank of South China also deteriorated significantly. As of the end of 2023, the non-performing loan rate rose to 1.49%, up from 1.08% in 2021 and 1.13% in 2022. In particular, the non-performing loans in the real estate industry for corporate customers increased significantly, with a non-performing rate of 4.92%, up 0.72 percentage points from the end of last year. In order to cope with the decline in asset quality, Guangdong Rural Commercial Bank of South China significantly increased the credit impairment loss provisions, with the amount reaching Rmb19.32bn, up 115.51% year-on-year. This not only reflects the credit risk pressure faced by the bank, but also further erodes its profitability.

Although Guangdong Rural Commercial Bank of South China is still pushing forward with its IPO process, the bank plans to issue no more than 131.5 million shares on the main board of Shenzhen Stock Exchange, raising about Rmb83.08bn, all of which will be used to replenish core Tier 1 capital. However, under the current economic environment, whether Guangdong Rural Commercial Bank of South China can successfully break through the obstacles and finally land on the A-share market still needs further examination by the market.