A friend asked me about China banks recently, probably because I have been bugging him about these and their prices have tumbled. I am not a bank expert but when it comes to listed China state-owned companies for that matter, everyone can be an expert including you !! ("just sell the China growth story") Disclaimer : All figures should be taken at face value/as it is - China until recently has its own accounting standard.
China banks are normally listed on both Shanghai and Hong Kong, so the normal way for most people to directly invest in them is through Hong Kong stock exchange. 3 of the big 4 China banks are listed in HK and their names/stock symbols are
Industrial and Commercial Bank of China
China Construction Bank
Bank of China
Agriculture Bank of China (not listed)
And by the way, this is also their order in size by assets. ICBC happens to be also the biggest bank in the world by market cap - and we know by now market cap can sometimes mean the number of balloons you have stuffed inside your pants...
So if you need to put money into them, how do you decide ? The most widely-used valuation method for banks is the price-to-book ratio. A look thru reuters.com and we can easily pull out their PE or price-to-book ratios. Example - ICBC ratios versus DBS.
Before you go plouging into those ratios and plotting your shopping sprees, I recalled somebody said "Profit is an illusion, cash flow is fact". And of course by now we also know that assets on book can be as valuable as toilet paper - the only question that needs to be answered is "how does the world view your toilet paper on a constant basis". And the world is fickle.
But feeling quite unsatisfied, I decided to dig around for their NPL(non-performing loans) ratios as well since China banks used to be notoriously non-performing, and probably personal relationships (guanxi) and "how is this deal going to enrich me" is as important as other business-critical factors when deciding on who to loan to. ICBC for example had a 19% NPL ratio in 2004 before the China government injected billions and did massive assets transfer to another local financial entity so that it can list on the stock exchanges peacefully in 2006, similarly for its peers.
NPL ratios that I managed to dig out from various news sources.
ICBC - 2.37% (end Sept08)
CCB - 2.22 % (end March08)
BOC- 3.5 % (end 2007)
The official figures for overall NPL for all China commercial banks as of End-Sept08 is 5.49% - but as recent Chinese history will tell you, don't read too much into it. Link
China banks are traditionally quite scary with lax internal controls, abound with stories of senior staff running away with bank's money. Read old story here and here
Of interest to note - there are also some commercial China banks listed in HK and this one is the most interesting - China Merchants bank. It has the highest EPS and margins of all the China banks.
So which bank will you buy ?? BOC is the cheapest (PE ratio), ICBC is the largest bank in China and "even in the world(甚至全世界!!)" while CMB is the most profitable (by operating margins) and CCB has the best performance based on IPO price (best loved by investors ??)
You might also be interested to know that for the past 2 weeks strategic pre-IPO investors have been dumping their stakes in these big China banks no less due to their own internal problems. (UBS and Li Ka Shing sells BOC, Bank of America sells CCB, and RBS almost ready to sell its BOC stake)
And if you like anchoring - IPO prices for them are
ICBC - HK$3.07
CCB - HK$2.35 (best performing)
BOC - HK$2.95
CMB - HK$8.55
Perhaps there is a reason I can only guess why BOC is much cheaper than its peers and the recent stake sale certainly will put more downward pressure in the short term....any comments ?
Added on Jan13th -
Found this link that shows foreign strategic investors in China banks - Singapore's Temasek holdings of BOC and CCB holdings are not listed though
8 months ago
