The blood recovery failed, and the Minsheng Bank was still in a trap

Kunyu Business Observation

2024-05-23 18:50Published in Beijing

Author: Li Xiang

The blood recovery failed, and the Minsheng Bank was still in a trap

The middle and high-level adjustments, the suspension of the sale of large-value certificates of deposit, and the re-suing of Oceanwide ...... Minsheng Bank has been making frequent moves recently.

On May 1, the qualifications of the new governor Wang Xiaoyong have been approved by the regulator; On May 14, the qualifications of the two new vice presidents, Zhang Juntong and Huang Hongri, were also approved.

On May 7, Minsheng Bank stopped selling large-denomination certificate of deposit products with a maturity of more than half a year, aiming to reduce debt costs and alleviate the downward pressure on interest margins.

On May 11, Minsheng Bank filed another lawsuit against the Oceanwide Company and Lu Zhiqiang, the actual controller of the company.

In addition to the middle and high-level adjustments, which started in March this year, the other two waves of operations of Minsheng Bank were carried out after the release of the financial report for the first quarter of this year. In this quarter, Minsheng Bank's revenue and net profit both fell, which can be said to have given the new leadership team a downward spiral, and the last double decline was in the second quarter of 2023.

In fact, in the past four years, Minsheng Bank's performance has been in a weak state. From 2020 to 2023, Minsheng Bank's revenue fell for four consecutive years; After a sharp decline of 36.25% year-on-year in 2020, net profit has increased slightly year by year since then, which is rare to get back some blood, but it is far below the level of 2019.

Looking back on the past few years, several important topics that accompanied Minsheng Bank were: frequent thunderstorms, repeated fines, and high non-performing loan ratios. However, in this context, the remuneration of senior executives of Minsheng Bank is one of the best in the industry.

Now, when revenue and net profit continue to decline and interest margins narrow, how to continue to recover will be the primary issue of the new leadership team of Minsheng Bank.

1. Performance continues to be under pressure, what is the first step of the new leadership team?

On the evening of April 29, Minsheng Bank released its financial report for the first quarter of 2024, with revenue of 34.273 billion yuan, a year-on-year decrease of 6.80%; The net profit attributable to the parent company was 13.431 billion yuan, a year-on-year decrease of 5.63%.

(Source: Minsheng Bank's financial report for the first quarter of 2024)

In the first quarter, Minsheng Bank's operating cash flow was -127.366 billion yuan, compared to 225.971 billion yuan in the same period of 2023, net investment cash flow was 11.242 billion yuan, compared to -48.831 billion yuan in the same period of 2023, financing cash flow was 25.777 billion yuan, compared to -113.642 billion yuan in the same period of 2023, and net cash flow was -89.41 billion yuan, compared to 62.941 billion yuan in the same period of 2023.

In the first quarter, Minsheng Bank achieved net interest income of 24.262 billion yuan, a year-on-year decrease of 1.107 billion yuan, a decrease of 4.36%; The net interest margin was 1.38%, down 11 basis points year-on-year, ranking last among domestic joint-stock banks.

As of the end of the first quarter of 2024, the total assets of Minsheng Bank were 7,727.511 billion yuan, an increase of 52.546 billion yuan or 0.68% from the end of 2023; the total liabilities were 7,075.029 billion yuan, an increase of 37.865 billion yuan or 0.54% over the end of 2023; The total amount of non-performing loans was 64.974 billion yuan, a decrease of 123 million yuan from the end of 2023, the non-performing loan ratio was 1.44%, a decrease of 0.04 percentage points from the end of 2023, and the provision coverage ratio was 149.36%, a decrease of 0.33 percentage points from the end of the previous year.

In fact, the weakness of Minsheng Bank has long been apparent.

From 2019 to 2023, Minsheng Bank's revenue will be 180.441 billion yuan, 184.951 billion yuan, 168.804 billion yuan, 142.476 billion yuan, and 140.817 billion yuan respectively, and the revenue will decline for four consecutive years from 2020 to 2023. The net profit attributable to the parent company was 53.819 billion yuan, 34.309 billion yuan, 34.381 billion yuan, 35.269 billion yuan and 35.823 billion yuan respectively, although it has increased slightly in the past three years, the net profit in 2023 is less than 7% of that in 2019.

During the above period, the non-performing loan ratios of Minsheng Bank were 1.56%, 1.82%, 1.79%, 1.68% and 1.48% respectively. The net interest income was 97.943 billion yuan, 135.224 billion yuan, 125.775 billion yuan, 107.463 billion yuan and 102.431 billion yuan respectively, and fell three times in the last three years, down 6.99%, 14.56% and 4.68% year-on-year respectively; The net interest margin was 2.11%, 2.14%, 1.91%, 1.6% and 1.46% respectively, showing three consecutive declines in the last three years.

Net interest margin refers to the ratio of a bank's net interest income to all interest-bearing assets of a bank, which is an important indicator of a bank's profitability and reflects the efficiency of the bank's capital use. In general, the higher the net interest margin, the more efficient the bank is in managing its assets and liabilities, and is able to access funds at a lower cost and use them efficiently to generate more interest income.

The narrowing of interest rate spreads is not unrelated to the reduction in deposit rates. Against this backdrop, on May 7, Minsheng Bank announced that it would stop selling large-denomination certificates of deposit products with a maturity of six months or more nationwide, and limit the purchase option of large-denomination certificates of deposit to January and March, with an interest rate of 1.7%.

In fact, some banks have recently suspended the sale of large-denomination certificates of deposit with a maturity of 3 years or more. It is reported that it is expected that the deposit interest rate will be lowered again in the second half of the year, and the interest rate on the issuance of large-amount certificates of deposit will gradually fall along with the deposit interest rate.

For interest margin management, in the recent performance of Minsheng Bank, Li Bin, vice president and secretary of the board of directors, said that in the next year, the interest margin management should first focus on the liability side, the overall deposit cost is still relatively high, and efforts should be made to broaden the source of low-cost and stable funds.

Undoubtedly, such a heavy task will be entrusted to the new leadership team. In March this year, Minsheng Bank issued a number of announcements on management changes. Among them, Zheng Wanchun, Vice Chairman and President, and Yuan Guijun, Executive Director and Vice President, resigned, and Mr. Wang Xiaoyong was appointed as President of Minsheng Bank, and Mr. Zhang Juntong and Mr. Huang Hongri were appointed as Vice Presidents of the Bank. In addition to the top management, Minsheng Bank also has middle-level personnel changes, involving multiple departments of the head office.

On May 1, Minsheng Bank announced that the qualifications of the new president Wang Xiaoyong had been approved by the regulator. On May 14, Minsheng Bank issued another announcement saying that the qualifications of the two new vice presidents, Zhang Juntong and Huang Hongri, were also approved.

What are the first steps for the new leadership team? Whether Minsheng Bank can stop its decline will be the next point to watch.

2. Sue Oceanwide again, when will the previous pit be filled?

On May 11, Minsheng Bank issued an announcement stating that the Beijing Branch of Minsheng Bank received the "Notice of Case Acceptance", and the relevant guarantor failed to perform the guarantee obligation because the borrower failed to perform the repayment obligation as agreed in the contract. The Beijing branch of the bank filed a lawsuit against China Oceanwide Holdings Group Co., Ltd., the "Oceanwide Group" company and Lu Zhiqiang, the actual controller of the company, on the grounds of a dispute over a financial loan contract.

Minsheng Bank pointed out in the announcement that the bank's borrowers, Oceanwide Group and Oceanwide Holdings, failed to fulfill their repayment obligations as agreed in the contract, and the relevant guarantors failed to fulfill their guarantee obligations. The lawsuit seeks to order the defendant Oceanwide Group to repay the total principal of the loan of 4.266 billion yuan, and the defendant Oceanwide Holdings to repay the plaintiff's loan principal of 1.2 billion yuan, as well as the corresponding interest, penalty interest and compound interest, totaling more than 5.4 billion yuan.

(Source: Minsheng Bank announcement)

On May 14, Oceanwide Holdings announced that the company received the prosecution materials of three cases served by the Beijing Financial Court (Minsheng Bank 1.16 billion yuan financial loan contract dispute, Minsheng Bank 2.7 billion yuan financial contract dispute, Minsheng Bank 1.16 billion yuan financial loan contract dispute), given that the above litigation is in progress, it is currently impossible to estimate the final impact on the company.

In fact, this is not the first time that Minsheng Bank has filed a lawsuit against Oceanwide Holdings.

In January 2023, the Beijing branch of Minsheng Bank sued Lu Zhiqiang, Wuhan Center Building Development and Investment Co., Ltd., Wuhan Central Business District Co., Ltd. and other companies on the grounds of financial loan contract disputes, involving a total amount of more than 7 billion yuan. Among them, Wuhan Center Building Development and Investment Co., Ltd. owes 3.972 billion yuan, and Wuhan Central Business District Co., Ltd. owes 3.046 billion yuan.

On October 9, 2023, Minsheng Bank announced an announcement on the progress of the litigation matters, and the first-instance judgment showed that Wuhan Central Company repaid the loan principal of 3.046 billion yuan to the Beijing branch of Minsheng Bank within 10 days from the effective date of the judgment, as well as the corresponding interest, overdue penalty interest and compound interest. At the same time, the Beijing Branch of Minsheng Bank has the right to discount the collateral provided by Wuhan Central Company or to auction or sell the property in priority. In addition, Oceanwide Holdings and Lu Zhiqiang bear joint and several guarantee liabilities and have the right to recover from Wuhan Central Company after paying off the above debts.

In fact, Minsheng Bank has a deep relationship with Oceanwide. Lu Zhiqiang, the actual controller of China Oceanwide Holdings Group Co., Ltd., is also one of the early initiators of Minsheng Bank, and is still the vice chairman of Minsheng Bank.

According to the 2023 annual report of Minsheng Bank, China Oceanwide Holdings Group Co., Ltd. is the sixth largest shareholder of Minsheng Bank, with a shareholding ratio of 4.12%. At present, the shares held are pledged. Lu Zhiqiang is the vice chairman and non-executive director of Minsheng Bank, with a total remuneration of 932,500 yuan. He is currently the chairman and president of Tonghai Holdings Co., Ltd., Oceanwide Group Co., Ltd. and the chairman of China Oceanwide Holdings Group Co., Ltd.

(Source: Minsheng Bank's 2023 financial report)

Oceanwide Holdings is a wholly-owned subsidiary of China Oceanwide Holdings Group Co., Ltd., which was established in 1989 and listed on the Shenzhen Stock Exchange in 1994.

On April 28, 2023, Oceanwide Holdings announced that the company's audited net assets attributable to shareholders of listed companies at the end of 2022 were negative. According to the regulations, a delisting risk alert will be implemented, with the starting date of May 5, 2023, and the stock abbreviation will be changed from "Oceanwide Holdings" to "*ST Oceanwide".

On the evening of February 6, *ST Oceanwide announced that the company's shares have been terminated by the Shenzhen Stock Exchange and will be delisted on February 7, 2024.

According to the announcement issued by China Securities Securities, according to the 2023 annual report and the financial statements of the first quarter of 2024, its asset-liability ratio is 130.47% and 132.86% respectively, both exceeding 90%, triggering the investor protection mechanism. CSC Securities will pay close attention to the information disclosure matters that have a significant impact on the interests of bondholders after the termination of the company's listing, and perform the duties of the bond trustee in strict accordance with the provisions of the "Trustee Management Agreement" for each issue of bonds.

CSC Securities is the trustee of "19 Pan Holdings 01", "19 Pan Holdings 02", "20 Pan Holdings 01", "20 Pan Holdings 02" and "20 Pan Holdings 03" issued by Oceanwide Holdings.

Judging from the current situation of Oceanwide Holdings, it is still unknown whether it will be able to repay its debts, and when will the hole left for Minsheng Bank be filled?

In fact, Minsheng Bank's stepping on Lei Oceanwide Holdings is only the tip of the iceberg, especially in the real estate sector, in recent years, Minsheng Bank's corporate non-performing loans are mainly concentrated in the real estate and manufacturing industries. Over the years, Minsheng Bank has launched strategic cooperation with 18 real estate companies, including Zhenro, Sunshine City, Jinke, Kaisa, Blu-ray Development, Baoneng, Tahoe, Evergrande and Sunac. According to a list of Evergrande debts, as of the first half of 2020, the debt owed to Minsheng Bank was as high as 29.3 billion yuan, ranking first among 86 financial institutions.

3. The fines are continuous, who will compete?

While frequently stepping on thunder, Minsheng Bank has repeatedly received fines for operating violations.

On April 10, a fine issued by the Jiangxi Supervision Bureau of the State Administration of Financial Supervision showed that the Nanchang Branch of Minsheng Bank was fined 400,000 yuan for failing to properly manage the internal control and management of enterprise-related service charging business and illegally collecting credit certificates for small and micro enterprises.

On April 19, the administrative penalty information disclosure table disclosed by the Hubei Supervision Bureau of the State Financial Supervision and Administration showed that the Wuhan branch of China Minsheng Bank Co., Ltd. was fined 1.5 million yuan a few days ago due to the failure to check the loan three times.

On April 22, the Shanghai branch of Minsheng Bank was fined 300,000 yuan for illegally passing on expenses to enterprises.

According to public data, from 2020 to 2023, Minsheng Bank will be fined 111 million yuan, 137 million yuan, 46 million yuan, and 220 million yuan respectively, with a cumulative fine of more than 500 million yuan and more than 300 million yuan in four years; In January 2024 alone, Minsheng Bank and its subordinate branches have received a total of more than 4 million yuan in fines. Minsheng Bank has ranked first among joint-stock banks in terms of cumulative fines in recent years, and has been known as the "king of fines".

It is worth noting that in the context of Minsheng Bank's sluggish performance, high non-performing loan ratio and continuous fines, Minsheng Bank's total executive compensation is far ahead of the banking industry.

Wind data shows that in 2023, the total remuneration of directors, supervisors and senior executives of Minsheng Bank will be 46.817 million yuan, ranking first in the banking industry. Bank of Jiangsu and China Merchants Bank ranked second and third with a total salary of 39.0119 million yuan and 37.2284 million yuan respectively. In the remuneration of the chairman of the banking industry, Gao Yingxin, chairman of Minsheng Bank, has a salary of 3.7352 million yuan, which is 2.4186 million yuan less than that in 2022, but it is still the first among A-share listed banks.

Overall, the credit rating given to Minsheng Bank by the rating company this year is still AAA, and the rating outlook is stable, but the existing risks cannot be ignored.

According to the rating report released by Dagong International on May 11, the proportion of equity pledge of some shareholders of Minsheng Bank is still relatively high, and some shareholders have major negative events such as overdue interest-bearing debts, and the stability of its equity structure and related related loan impairment risks still need attention. Minsheng Bank's real estate industry loans are still large, and the quality of related assets is still low; Affected by the narrowing of interest margins, Minsheng Bank's net interest income continued to decrease, coupled with the continued decline in net fee and commission income, and the continued decline in operating income, and its profitability still needs to be improved.

According to the rating report released by Oriental Jincheng on April 12, under the influence of concessions to the real economy, accelerated risk resolution and substantial reduction of non-standard investment, Minsheng Bank's interest margin continued to narrow and its profitability indicators weakened; The bank's real estate-related business has a large scale of credit, there is a certain amount of risk management and control pressure, and the provision coverage ratio is lower than the average level of joint-stock banks. Some of the bank's shareholders have a high proportion of equity pledges, and they have been frozen by the judiciary and marked by the judiciary, so it is necessary to pay attention to the stability of their equity structure and the risk control of related party transactions. The bonds are repaid in the order of the depositors, general creditors and subordinated debts that are in a higher ranking than the bonds, and contain a write-down clause.

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