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Bank of Guangzhou IPO: nearly 9.5 billion funds raised while non-performing loans increased

China's real estate loan non-performing ratio rose from 2.23% to 5.38% while Small and Medium Banks Race for IPOs.



On March 25, the Bank of Guangzhou updated its prospectus, disclosing its performance for the first half of 2022.


This time, the Bank of Guangzhou plans to raise 9.47874 billion yuan, which will be used to replenish its core tier-1 capital after deducting issuance expenses. From January to June of 2019-2022, the core tier-1 capital adequacy ratios of the Bank of Guangzhou are 10.14%, 10.10%, 9.16%, and 9.15%. Although they meet the regulatory requirements, they are showing a downward trend.


The Bank of Guangzhou put forward the slogan of going public more than ten years ago, but the real process was slow.


Bank of Guangzhou was established in August 1996. It was jointly initiated by 43 urban credit cooperatives in Guangzhou, business departments of 2 urban credit cooperatives, shareholders of Guangzhou Urban Credit Cooperatives Union, and the Guangzhou Municipal Finance Bureau.


According to the prospectus, there were 18,000 shareholders of the Bank of Guangzhou at that time, including 1,637 non-natural person shareholders and 16,800 natural person shareholders.


Due to a large number of shareholders, the equity structure and equity relationship of the Bank of Guangzhou have also attracted the attention of the regulators.


On June 18, 2020, the Bank of Guangzhou submitted its listing application to the Shenzhen Stock Exchange for the first time. At that time, in the feedback issued by the China Securities Regulatory Commission, the Bank of Guangzhou was required to explain its shareholder composition, shareholding status, and equity transfer status.


From the establishment of the Bank of Guangzhou to January-June 2022, 8,230 equity transfers occurred in the Bank of Guangzhou. Among them, a total of 851 state-owned equity transfers occurred.


Real Estate: The Propeller of China's Economic Growth


The reform of China's housing system has undergone more than 40 years of development, and the real estate industry has already become the propeller of China's economic growth.


While China's real estate industry continues to develop, it also drives the development of related industries, such as construction, manufacturing, logistics, banking, and real estate finance. In 2020, the added value of the real estate industry was 7.45 trillion yuan.


In 2020, the real estate industry contributed 7.34% to the national economy. The gap with America's 12.2% of GNP is narrowing.


However, due to the limited land resources in China's cities and towns, the land cost is high, which makes real estate companies have to use financing to develop land for enterprise development.


In August 2020, the Ministry of Housing and Urban-Rural Development of the People's Republic of China and the People's Bank of China delineated "three red lines" for financing real estate companies.


The emergence of these situations makes the financing threshold of real estate enterprises higher and higher. It is more difficult for China's real estate enterprises to obtain financing.


The Net Profit Attributable to the Parent Fluctuated and Declined, and the Average Yield of the Loan Business Declined Year by Year


Up to now, Guangzhou Bank still has 302 non-natural person shareholders and 1088 natural person shareholders whose rights have not been confirmed, holding 68.1366 million shares, which accounted for 0.58% of the bank's total share capital before the issuance.


As of March 1, the Guangzhou Municipal People's Government has become the actual controller of Guangzhou Bank by holding 90.68% of the equity of Guangzhou Financial Holding Group Co., Ltd. Among them, Guangzhou Financial Holding Group Co., Ltd., directly and indirectly, holds 4.981 billion shares of Bank of Guangzhou, accounting for 42.30% of the total shares before the issuance.


From 2019 to 2021, the operating income of the Bank of Guangzhou increased year by year, from 13.379 billion in 2019 to 16.564 billion. In the first half of 2022, the operating income of the Bank of Guangzhou was 8.776 billion. According to the prospectus, from January to June 2019-2022, the Bank of Guangzhou distributed cash dividends four times, with the amounts of 1.295 billion, 1.295 billion, 1.295 billion, and 1.178 billion, for a total of 5.064 billion dividends.


Contrary to operating income, the net profit attributable to the parent of Bank of Guangzhou showed a fluctuating and declining trend. From January to June 2019-2022, the net profit attributable to the parent of Bank of Guangzhou was 4.324 billion, 4.455 billion, 4.101 billion, and 1.584 billion, respectively.


The operating income of the Bank of Guangzhou mainly comes from interest rate income. From the perspective of income structure, the operating income of the Bank of Guangzhou mainly includes net interest income and non-interest income, of which net interest income accounted for more than 76% of operating income during the reporting period.


The interest income of the Bank of Guangzhou mainly comes from the interest income generated from loans and advances, financial investments,s, and other businesses. Benefiting from the steady growth of loans and financial investment, from 2019 to 2021, the interest income of the Bank of Guangzhou was 24.680 billion, 26.783 billion, and 30.615 billion, respectively. In the first half of 2022, the interest income of the Bank of Guangzhou was 15.547 billion, which was 50.78% of the interest income for 2021.


Loan "Concentration" Is High


Bank of Guangzhou also shows the characteristics of the "three highs" of loan customer concentration, loan industry concentration, and loan geographical concentration.


The loans and advances business of the Bank of Guangzhou is mainly concentrated in Guangzhou. From January to June 2019-2022, the proportion of loans and advances issued by the Bank of Guangzhou to customers in Guangzhou accounted for its total loans and advances increasing yearly. From 2019 57.73% of the increase to 60.06% at the end of June 2022.


From January to June 2019 to 2022, the proportion of the loan scale of the largest single customer of Bank of Guangzhou to the net capital fluctuated.


As of the end of June 2022, the top three bank loans and advances to net capital accounted for by Guangzhou Nanda Trunk Line Investment Co., Ltd., Gree Electric Appliances, Inc. Of Zhuhai, and Guangzhou Yuexiu Group Co., Ltd. The balance of loans and advances to the top ten customers accounted for 47.01% of the net capital.


The Scale of Non-performing Loans Has Increased Year by Year, Nearly Tripling in Three and a Half Years


The loan business is the Bank of Guangzhou's main income source. From January to June 2019-2022, the scale of loans and advances to the Bank of Guangzhou has increased yearly, from 288.21 billion in 2019 to 399.382 billion at the end of the first half of 2022.


But at the same time, the non-performing loan ratio of the Bank of Guangzhou has also risen with the state of the loan scale. Since 2019, the non-performing loan ratio has shown an overall upward trend.


From January to June of 2019-2022, the total non-performing loans of Bank of Guangzhou were 3.518 billion, 3.639 billion, 6.084 billion, and 10.213 billion, respectively, and the non-performing loan ratios were 1.19%, 1.10%, 1.57%, and 2.49%.


Affected by the real estate industry, the non-performing loan ratio of the Bank of Guangzhou rose sharply by the end of June 2022, an increase of 0.92% from the end of 2021. If the impact of new real estate-related non-performing loans in the first half of 2022 is excluded, the non-performing loan ratio of Bank of Guangzhou is 1.66%, which is relatively close to that at the end of 2021.


From 2019 to the end of June 2022, the non-performing loan balances of Bank of Guangzhou real estate companies were 316 million, 403 million, 956 million, and 2.173 billion, respectively, and the non-performing loan ratios were 0.90%, 1.14%, 2.23%, and 5.38%.


As of the end of June 2022, among the top ten non-performing loan customers of Bank of Guangzhou, there are four in the real estate industry alone, namely Zhuhai Aoyuan Huafu Real Estate Co., Ltd., Shenzhen Hongteng Investment Management Co., Ltd., Zhaoqing Huaji Real Estate Development Co., Ltd. Co., Ltd., and Kaisa Urban Renewal Group (Shenzhen) Co., Ltd. The above accounted for 39.64% of the loan balance of the top ten non-performing loan customers.


 

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