By Zhang Lu (China Daily)
Updated: 2007-07-12 07:50

The initial public offering of two lenders - Bank of Nanjing and Bank of Ningbo - this week will spur a new round of bank listings on the domestic stock markets.

The major players in this listing rush will be qualified city commercial banks as most State-owned and joint-stock banks have already gone public.

Bank of Nanjing, partly owned by top French lender BNP Paribas, plans to sell up to 700 million A shares, or 36.72 percent of its enlarged capital after the initial public offering (IPO), for a listing on the Shanghai stock market.

Bank of Ningbo, partly owned by Singapore's Oversea-Chinese Banking Corp, will issue 450 million A shares, or 18 percent of its enlarged capital, for a listing on the small and medium-sized enterprises (SME) board of the Shenzhen stock market.

Apart from the two banks, Bank of Beijing has also completed its application for a simultaneous IPO in Hong Kong and Shanghai.

A few other city commercial lenders with overseas strategic investors, including those in Hangzhou, Chongqing and Shanghai, are next in line.

These lenders, the top ones among the country's 114 city commercial banks, are comparable to their bigger counterparts regarding business performance and asset quality.

Statistics from the China Banking Regulatory Commission shows the average non-performing loan (NPL) ratio of city commercial banks stood at 4.8 percent at the end of 2006, against an average of 7.51 percent for big State banks.

By the end of 2006, total assets of China's 114 city commercial banks were 2.6 trillion yuan, or 6 percent of the country's total banking assets of 44 trillion yuan.

Bank of Nanjing, with 58 branches in Jiangsu Province, reported gross assets worth 57.9 billion yuan and net profits of 595 million yuan in 2006. Its NPL rate was 2.47 percent.

With 68 branches in Zhejiang Province, Bank of Ningbo had 56.6 billion yuan in total assets, with a NPL rate of only 0.33 percent last year.

"Tens of city commercial lenders with good performance may be eligible to list in the next year or two," said Zhang Qi, an analyst from Haitong Securities.

Some of them are now in the process of seeking strategic partners. IPOs of the two lenders, especially Ningbo, are a good sign for other listing hopefuls, Zhang said.

According to him, Bank of Ningbo, the first financial share on the SME Board, paves the way for others, whose listings will be limited to a much smaller scale compared with State banks.

"Their listing will offer diversified options for investors," said She Minhua, analyst from CITIC China Securities.

An obvious reason for city commercial banks' IPO enthusiasm is to boost capital strength to meet the requirements of the New Basel Capital Accord, a framework for standards in international banking, She said.

"It will be a trend for city commercial lenders with good assets to establish a long-term capital-supply mechanism through public listings," said Li Xiaohui, an analyst with CITIC Securities.

They are also using proceeds from public offerings to expand and improve their businesses as they move to fend off foreign competitors, which were allowed to offer renminbi retail services in December.

These banks' operations will be further improved through enhanced shareholding structure, corporate governance, risk control, information disclosure and management, after public listings, She said.

"But the prime reason for their listing rush might be the need for geographic expansion," he said.

An earlier report from Standard & Poor's said city commercial banks in major cities are likely to be affected by the opening up of the banking sector more than State-owned and joint-stock banks because of their lack of geographic reach.

Last year, Bank of Beijing and Bank of Shanghai started to expand beyond their hometowns, followed by Bank of Ningbo this year.

However, "it is not an easy task", She said, as they have always been restricted to their home market. "Public listing will help boost their reputation and brand image, and help their business expansion as well as improve their performance in their home markets."

(China Daily 07/12/2007 page15)