Foreign investment shows confidence in China's banking sector: experts
Postal Savings Bank of China (PSBC) held its initial public offering (IPO) in Hong Kong on Wednesday, which reportedly included investment from well-known overseas institutions, a move experts say shows that foreign investors' confidence in China's banking sector has increased.
With an IPO price of HK$4.76 ($0.60) per share, PSBC is expected to raise HK$56.6 billion, according to a report from the Hong Kong Exchanges and Clearing Ltd (HKEx) on Tuesday. This makes it the world's largest IPO since Internet giant Alibaba raised a fund of $25 billion in 2014.
The share price of PSBC closed up 0.21 percent to HK$4.77 on Wednesday.
Foreign investors
The IPO may have also pulled in several overseas institutional investors including Soros Fund Management, Wellington Management Company and Och-Ziff Capital Management Group, domestic news portal caixin.com reported on Wednesday, citing sources close to the event.
"This may be because these investors see benefits to its high dividend return," She Minhua, a banking stock analyst at Zhong De Securities, told the Global Times on Wednesday.
Guo Tianyong, head of the research center of the Chinese banking industry at the Central University of Finance and Economics in Beijing, suggested that the investors purchased shares of PSBC due to its high asset quality and development potential.
PSBC's ratio of nonperforming loans (NPL) stood at 0.81 percent in March, far below the average of 1.73 percent for other large-scale commercial banks, reported by the HKEx in September.
"PSBC's asset quality is better than other commercial banks as the lender provided more personal loan services," She explained, though also noted that "PSBC couldn't shake off the fluctuations that effected the whole industry."
According to She, NPLs in China's commercial banks are on the rise, but the situation is controllable through various measures like debt-to-equity swaps.
"On average, the NPL ratio in China's banking sector is 2 percent. It may be limited to 3 percent when NPLs are fully exposed, which is still better than that in banks in Europe and the U.S.," he said.
In 2015, the NPL ratio in the EU stood at 5.6 percent while the world average was 4.3 percent, data from the World Bank showed.
However, She predicts China's narrowed interest rate differential will continue due to the country's slow economic growth.
The interest rate differential in commercial banks dropped 16 basis points in 2015, according to data from the China Banking Association (CBA) released in July.
Intermediate businesses
Experts believed that increasing intermediate businesses helped domestic banks remain competitive.
Data from New York-based financial data provider Dealogic showed that in 2016 Chinese banks have, so far, taken in a record high of 60 percent in consulting fees from mergers and acquisitions in Asia, The Wall Street Journal reported Wednesday.
Meanwhile Goldman Sachs Group Inc, who ranked first among investment banks in China and other emerging economies in Asia in 2014, has now slipped out of the top 10, according to the report, which offered that the change in the rankings was due to the large amount of loans Chinese banks could provide to their clients.
With the rapid increase in fund management and financial transactions, intermediate businesses at Chinese banks are growing fast, and contributing to a significant part of their revenue, the CBA reported.
In 2015, service charges and commissions contribute 746 billion yuan to net revenue for China's public banks, up 15 percent year-on-year, according to data from the CBA.
