The IPO plight of Nanhai Rural Commercial Bank and Shunde Rural Commercial Bank: Double challenges of declining bank performance and rising non-performing loans
AInvestWednesday, Jul 17, 2024 6:00 am ET
2min read
ROAD --

Nanhai Rural Commercial Bank recently updated its prospectus again, and the IPO application status is "accepted". Founded in 1952, the bank has undergone several reforms and started to prepare for its IPO in A shares in 2018. The bank plans to raise about Rmb83.08bn to replenish its core Tier 1 capital. However, the bank's road to listing is not smooth sailing. The challenges it faces not only reflect its own operating challenges, but also reflect the current cooling trend of the collective listing of small and medium-sized banks.

Performance Slides: A Hurdle for Small Banks' IPO

Nanhai Rural Commercial Bank and Shunde Rural Commercial Bank, two important rural commercial banks in Guangdong, have faced the problem of sluggish performance growth in recent years. Nanhai Rural Commercial Bank has been in a "more profits but less interest" dilemma for two consecutive years. Although its net interest income increased by 1.06% in 2023, its net profit decreased by 12.61% year-on-year. Similarly, Shunde Rural Commercial Bank's net interest income and net profit decreased by 7.8% and 0.1% year-on-year respectively in 2023. The net interest margin and asset turnover rate of both banks showed a downward trend year after year, reflecting a continuous weakening of profitability. The performance decline not only affected investors' confidence, but also brought greater pressure to the supervision authorities' examination.

Rising NPL Ratio: A Hidden Concern in the IPO Process

In addition to the performance decline, the rising NPL ratio is a major hidden concern for Nanhai Rural Commercial Bank and Shunde Rural Commercial Bank's IPO process. As of the end of 2023, the NPL ratio of Nanhai Rural Commercial Bank was 1.49%, up 0.36 percentage points year-on-year; the NPL ratio of Shunde Rural Commercial Bank was 1.48%. More worryingly, the coverage ratio of both banks' provisions showed a downward trend. The coverage ratio of Nanhai Rural Commercial Bank fell from 324.41% in 2019 to 230.16% at the end of 2023, and Shunde Rural Commercial Bank fell 62.18 percentage points to 201.75% from the end of last year. The rise in NPL ratio and the decline in provision coverage ratio not only reflect the deterioration of bank assets, but also highlight the challenges faced by the bank's risk management capabilities.

Nanhai Rural Commercial Bank and Shunde Rural Commercial Bank's IPO road is full of challenges, but also reflects the common challenges faced by small and medium-sized banks. In the context of increasing economic downturn pressure, how to improve operating conditions and improve asset quality is the key to whether these banks can successfully list. Although listing is still an important channel to replenish capital, it is more urgent for Nanhai Rural Commercial Bank and Shunde Rural Commercial Bank to improve their core competitiveness through internal reform and business innovation. Only in this way can they stand firm in the fierce competition and lay a solid foundation for future listing.

Key Words: Bank, IPO

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.