2 July 2022
On another day, another banking incident happened in China. This time, it involves a larger bank, the Nanjing Bank in Nanjing, Jiangsu Province. It is about a few hundred Km east of Shanghai.
What happened?
The bank's CEO, Mr Lín jìngrán (林静然) suddenly submitted his resignation on 29 June 2022.
The stock market and the public had taken this as a surprise. The news caused the "circuit breaker" of the Nanjing Bank counter to trip when the bank's stock price plunged over 10% in value. The stock price eased to end the day with a 6% loss after the bank came out to clarify that the CEO resigned on his accord after ending his 2-year term as a CEO and after he had found a new job.
Anything Wrong?
It is nothing but common to read about CEOs resigning from banks. This is especially so when the banks will usually warn the market beforehand, giving where about the CEO would go in the next job.
What happening in Nanjing Bank came as a surprise because
1) The resignation of the CEO came without any pre-warning; then
2) The was a change in the Company's stamp (印章); plus
3) The Provincial Government step up its effort to control banking failures.
The banking analysts were quick in defending the Nanjing bank's financial position, giving the following analysed results to calm the stock market and the public. The local authorities were even faster in coming out with warnings about public misinformation, requesting the public not to spread the misinformation.
The Banking Financial Position
The Nanjing Bank's position is nothing but spectacular as one might find from its financial reports as shown on this web page
(doubleclick picture to go to the website)
The most important thing is the bank has adequate funds with an asset ratio of 13.54 to cover any bad debts. It has also a non-performing loan (NPL) ratio of 0.91. This NPL ratio of 0.91 is much much better than many other banks for example those in Hong Kong and in Singapore.
What could go wrong?
The following could go wrong as stated on page 53 of the bank's financial report in 2021. The bank has a credit commitment of 393 Brillion Yuan or 58 Billion USD. This figure is about 22% of the bank's total assets or about 10x the bank's operating revenue in 2021. These 393 Billion are the off-balance-sheet amounts which could become a problem if they are converted to debts in the future time.
What if?
Presently, the bank has a positive balance sheet as shown with the total assets standing at 1.7 Trillion Yuan and the total debts around 1.6 Trillion. If the committed fund were converted to debts, the bank would be considered bankrupt.
Conclusion
On the surface, Nanjing Bank has a healthy balance sheet if the credit committed funds are always excluded from the balance sheet.
Disclaimer: This article is for information and educational purposes. Readers are advised to conduct their own research and study to make their own investment decisions.
No comments:
Post a Comment