Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

Even at half price, China’s small banks find no buyers at auction

Even at half price, China’s small banks find no buyers at auction

Since May 24, there had been more than 1,400 attempted sales on Taobao of mostly unlisted rural and city bank shares. Even with deep discounts, over half the auctions failed to sell in their first attempt, transaction records show.

Chinese banks are trading at a distressed level in Hong Kong, at an average of 0.6 times their forecast book value

Stocks and bonds of smaller banks – companies that UBS estimated are facing a potential capital shortfall of 2.4 trillion yuan – are struggling to find buyers

To see how little investors love China’s small banks, look no further than the nation’s largest online auction site.

On Alibaba Group Holding’s Taobao platform, a Chinese court tried to auction off 1.5 million shares of a rural bank in the eastern Zhejiang province for a starting price of 1.15 million yuan (US$161,000) – about half their appraised value. After three failed attempts over two months, the latest relisting drew only about a thousand views. And not a single bid.

That’s not an isolated case. Since May 24, when the Chinese government stunned the market with its first bank seizure in more than two decades, there have been more than 1,400 attempted sales on Taobao of mostly unlisted rural and city bank shares. Even with deep discounts, over half the auctions failed to attract bidders in their first attempt, transaction records show.

Investors are shunning China’s smaller banks as many contend with a growing pile of soured loans, weaker capital buffers and poor risk management following years of breakneck expansion, often through non-traditional financing. As a result, stocks and bonds issued by smaller banks – companies that UBS Group has estimated are facing a potential capital shortfall of 2.4 trillion yuan – are struggling to find buyers.

“Most banking licenses are no longer valuable,” said Zhang Shuaishuai, a Shanghai-based analyst at China International Capital Corporation (CICC). “With the ongoing deleveraging campaign, fiercer competition and tougher regulatory oversight, some smaller banks are fighting a battle for survival. Investors have no confidence in the healthiness and transparency of their balance sheets.”

The market has been jittery ever since the government took over Inner Mongolia-based Baoshang Bank, a move that led to losses for some institutional creditors. In the aftermath, borrowing costs for lower-rated banks soared, and only subsided once regulators injected tens of billions of dollars into the financial system. In July, authorities orchestrated a rescue for another struggling regional firm, Bank of Jinzhou.

The problems at Baoshang and Jinzhou aren’t isolated issues, Xiaoxi Zhang, an analyst at Gavekal Dragonomics, wrote in a note to investors Thursday. “China is not yet finished dealing with the fallout from small banks’ years of reckless growth,” she said.

Chinese banks are trading at a distressed level in Hong Kong, at an average of 0.6 times their forecast book value. The MSCI China Banks Index, comprised of larger companies, has lost 2 per cent this year, compared with a 1.8 per cent gain for the benchmark Hang Seng Index. Among the country’s smaller banks, the worst performers include Bank of Jinzhou, which has tumbled 58 per cent this year, and Bank of Tianjin, which has dropped by almost a third.

Recent on-site checks at smaller banks by regulators found issues including loans to unqualified borrowers, the hiding of non-performing debt and the acceptance of fake signatures. Officials have also clamped down on stockholders who used borrowed funds to pay for their stakes, forcing fire sales of shares, and tightened rules for new investors.

Used by millions of Chinese to buy everything from clothes and food to electronics at bargain prices, Alibaba’s Taobao e-commerce platform – something of a Chinese version of eBay – has also become a place to unload such assets as bad loans, industrial equipment and even Boeing 747 planes. Taobao translates roughly as “digging for treasure.”

Bank shares up for sale on Taobao are yet another sign of financial distress. Local courts are behind almost all the postings, as they handle investor bankruptcies and try to raise money to pay off creditors. The number of listings on the site this year is up 30 per cent from the same period in 2018.


Distressed Assets

Jason Bedford, a former UBS analyst who flagged the problems at Baoshang long before it was seized, has put the size of assets “in distress” that are held by a broader universe of Chinese lenders at 9.2 trillion yuan.

Chinese banks face further pressures on profitability, an increase in non-performing loans and a need for additional capital as growth slows. China’s economic expansion may decelerate to 3.6 per cent next year under a hypothetical scenario, according to Fitch Ratings.

Even at an apparent discount, bank shares on Taobao may not be a good deal. In early August, a bidder bought about 3.6 million of Zhongyuan Bank’s Hong Kong-listed shares in a Taobao auction for about 5 million yuan, 19 per cent less than the market price at the time. Based on the latest trading price for the stock, the buyer still overpaid: the shares have plunged 38 per cent since then.

“Investors are having difficulty in assessing the real value of small banks” amid hidden risks such as a sudden drop in their capital-adequacy ratio, said Chen Hao, a Shanghai-based senior analyst of financial supervision at CIB Research. “Their shares are just not attractive.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Altman Says GPT-5 Already Outpaces Him, Warns AI Could Automate 40% of Work
Russian Research Vessel 'Yantar' Tracked Mapping Europe’s Subsea Cables, Raising Security Alarms
Global Cruise Industry Posts Dramatic Comeback with 34.6 Million Passengers in 2024
U.S. Demands Brussels Scrutinize Digital Rules to Prevent Bias Against American Tech
Private Equity’s Fundraising Surge Triggers Concern of European Market Shake-Out
Tokyo’s Jimbōchō Named World’s Coolest Neighbourhood for 2025
European Officials Fear Trump May Shift Blame for Ukraine War onto EU
The Personality Rights Challenge in India’s AI Era
Italy Considers Freezing Retirement Age at 67 to Avert Scheduled Hike
Italian City to Impose Tax on Visiting Dogs Starting in 2026
Study Finds No Safe Level of Alcohol for Dementia Risk
Trump Says Ukraine Can Fully Restore Borders with NATO Backing
Europe Signals Stronger Support for Taiwan at Major Taipei Defence Show
Germany Weighs Excluding France from Key European Fighter Jet Programme
Cyberattack Disrupts Check-in and Boarding Systems at Major European Airports
Björn Borg Breaks Silence: Memoir Reveals Addiction, Shame and Cancer Battle
When Extremism Hijacks Idealism: How the Baader-Meinhof Gang Emerged and Fell
JWST Data Brings TRAPPIST-1e Closer to Earth-Like Habitability
Trump Orders $100,000 Fee on H-1B Visas and Launches ‘Gold Card’ Immigration Pathway
France’s Looming Budget Crisis and Political Fracture Raise Fears of Becoming Europe’s “Sick Man”
Three Russian MiG-31 Jets Breach Estonian Airspace in ‘Unprecedentedly Brazen’ NATO Incident
European manufacturers against ban on polluting cars: "The industry may collapse"
Turkish car manufacturer Togg Enters German Market with 5-Star Electric Sedan and SUV to Challenge European EV Brands
Christian Brueckner Released from German Prison after Serving Unrelated Sentence
World’s Longest Direct Flight China Eastern to Launch 29-Hour Shanghai–Buenos Aires Direct Flight via Auckland in December
New OpenAI Study Finds Majority of ChatGPT Use Is Personal, Not Professional
The conservative right spreads westward: a huge achievement for 'Alternative for Germany' in local elections
Pope Leo Warns of Societal Crisis Over Mega-CEO Pay, Citing Tesla’s Proposed Trillion-Dollar Package
Poland Green-Lights NATO Deployment in Response to Major Russian Drone Incursion
U.S. and China Agree on Framework to Shift TikTok to American Ownership
Le Pen Tightens the Pressure on Macron as France Edges Toward Political Breakdown
Czech Republic signs €1.34 billion contract for Leopard 2A8 main battle tanks with delivery from 2028
Penske Media Sues Google Over “AI Overviews,” Claiming It Uses Journalism Without Consent and Destroys Traffic
Indian Student Engineers Propose “Project REBIRTH” to Protect Aircraft from Crashes Using AI, Airbags and Smart Materials
One in Three Europeans Now Uses TikTok, According to the Chinese Tech Giant
Could AI Nursing Robots Help Healthcare Staffing Shortages?
NATO Deploys ‘Eastern Sentry’ After Russian Drones Violate Polish Airspace
The New Life of Novak Djokovic
German police raid AfD lawmaker’s offices in inquiry over Chinese payments
Volkswagen launches aggressive strategy to fend off Chinese challenge in Europe’s EV market
France Erupts in Mass ‘Block Everything’ Protests on New PM’s First Day
Poland Shoots Down Russian Drones in Airspace Violation During Ukraine Attack
Apple Introduces Ultra-Thin iPhone Air, Enhanced 17 Series and New Health-Focused Wearables
Macron Appoints Sébastien Lecornu as Prime Minister Amid Budget Crisis and Political Turmoil
Vatican hosts first Catholic LGBTQ pilgrimage
Apple Unveils iPhone 17 Series, iPhone Air, Apple Watch 11 and More at 'Awe Dropping' Event
France joins Eurozone’s ‘periphery’ as turmoil deepens, say investors
France Faces New Political Crisis, again, as Prime Minister Bayrou Pushed Out
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
France, at an Impasse, Heads Toward Another Government Collapse
×