Pedestrians walk on an overpass with a board displaying stock indices on March 17 in Shanghai. [Photo/Agencies]
Lenders with various benefits are expected to be the main swimmers
With the full implementation of the registration-based IPO system in the A-share market, the number of listed banks in China is expected to increase significantly and IPOs for small and medium-sized banks could be accelerated, experts said.
China is gradually moving forward with the transfer from the China Securities and Exchange Commission to the bourses of candidates for IPOs relating to companies in the process of being reviewed and approved for listing on the main bourses of Shanghai and Shenzhen.
As of Monday, 10 out of 11 small and medium-sized banks lining up to list on the two exchanges’ main exchanges are on the list of companies to be screened by the exchanges.
China has officially rolled out its nationwide, registration-based IPO system, with the related rules taking effect on Feb. 17, according to the China Securities Regulatory Commission.
Under the new system, the listing examination process is more convenient, which is more favorable for banks with excellent performance and has obvious business advantages and unique development potential, experts said.
Liao Zhiming, chief banking analyst at China Merchants Securities Co, said after the country fully implements the registration-based IPO system, the number of listed banks is expected to increase significantly and IPOs may accelerate for small and medium-sized banks.
As listing difficulties are reduced, small and medium-sized banks should proactively improve information disclosure and regulate financial management according to the requirements of the registration-based IPO system in order to go public as soon as possible, Liao said.
Among small and medium-sized banks, those with obvious localization advantages, clear development strategies, solid equity structures and strong digital genes will become the driving force behind the IPO, said Yang Haiping, a researcher at the Institute of Securities and Futures of the Central University of Finance and Economics.
Experts believe that the registration-based IPO system is actually a boon for many small and medium-sized banks to replenish capital through IPOs.
Zeng Gang, director of the Shanghai Institution for Finance & Development, said the IPO can expand small and medium-sized banks’ capital replenishment channels and improve their capital adequacy ratios. It can also increase banks’ brand influence, thereby improving their competitiveness.
In recent years, the capital needs of small and medium-sized banks have become urgent. At the end of the fourth quarter of last year, the capital adequacy ratio of China’s urban commercial banks was 12.61 percent, down 0.47 percentage points from a year earlier. During the same period, the CAR of the country’s rural commercial banks fell 0.19 percentage points to 12.37 percent, according to the China Banking and Insurance Regulatory Commission.
The main problem that many small and medium-sized banks are currently facing is the need to replenish Tier 1 capital. Under the pressure, IPOs are an optional solution for these banks, said Wang Yifeng, chief financial sector analyst at Everbright Securities.
In addition, engaging strategic investors during the IPO process can further promote shareholder diversification and better corporate governance of banks, thereby preventing financial risks, said Lou Feipeng, senior economist at Postal Savings Bank of China.
The China Banking and Insurance Regulatory Commission said at a meeting on March 13 that various risks and hidden dangers should be addressed promptly and the reform of small and medium-sized financial institutions should be deepened to continuously strengthen the security system and ensure financial stability and sticking to the bottom line of no systemic financial risk.
Bank credit quality will remain mixed in China over the next 12 to 18 months. Regional banks, including urban and rural commercial banks, remain vulnerable to further deterioration in asset quality due to less diversified loan portfolios and greater exposure to weaker borrowers, according to a March 15 report by Moody’s Investors Service.
The government will remain keen to maintain financial stability as there are signs that security considerations, including banking system risk prevention, will play a stronger role in economic policy than before, Moody’s said.
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