More Banking Bad News From Minsheng 民生银行融资揭示银行业困境

By newsdoug on February 24, 2012

Minsheng plan highlights banks' stretched balance sheets The latest sign of trouble is emerging from China’s banking sector, where Minsheng Bank (HKEx: 1988; Shanghai: 600016), one of the nation’s more commercially-focused lenders, has just announced plans to raise up to $1.6 billion or more to bolster its shaky capital base, even as Beijing is encouraging banks to lend even more. Minsheng’s plan would see it issue new H-shares in Hong Kong, and could also see a convertible bond offering linked to its Shanghai-listed A-shares, according to a filing with the Hong Kong stock exchange. (HKEx filing; English article) The new fund raising would follow similar recent moves by ICBC (HKEx: 1398; Shanghai: 601398), China Merchants Bank (HKEx: 3968; Shanghai: 60036) and Ping An Insurance (HKEx: 2318; Shanghai: 601318), and are likely to be followed by more such announcements this year as many of the loans made to local governments in 2009 to boost China’s economy during the financial crisis start to sour. This latest share issue from Minsheng is particularly worrisome, as the privately-funded bank is one of China’s few major players that doesn’t count the government as its major stakeholder, meaning it is more commercially focused and better reflects true market conditions. Look for more capital raising plans in the next few months, with analysts saying Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) and Bank of Communications (HKEx: 3328; Shanghai: 601328) both looking likely to need new cash soon. The new round of cash calls is even more alarming than a similar round 2 years ago, as this time the banks, despite their shaky balance sheets, are also being called on by Beijing to boost their lending as economic growth shows signs of slowing sharply. Beijing is making its call even though it has also ordered banks to sharply cut back on their loans for mortgages and to local governments, which are 2 major sources for new lending. As a result, one of the few outlets for new loans has been the stock market, which has rallied 10 percent since the beginning of the year on a flood of new money into stocks. Reflecting the unbalanced situation in the stock market, newly listed Jishi Media (Shanghai: 601929) soared 87 percent in its trading debut in Shanghai on Thursday. (English article) Sure, perhaps Jishi is an interesting company as China finally starts to let its media companies go public. But at the end of the day, Jishi is still just a tiny national player and shouldn’t be getting this much attention. Look for the stock market rally to continue as long as banks keep boosting their lending, and then for problems to set in later this year when the rally fizzles and many of the new loans start to sour.

Bottom line: Minsheng Bank’s new capital raising plan is the latest for China’s troubled banking sector, with more to come this year as banks try to obey Beijing’s orders to boost their lending.

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