Written by: Taro Ball
Source: Bedo Finance
Recently, Huaxia Bank Co., Ltd. (SH: 600015, hereinafter referred to as "Huaxia Bank") Beijing Branch and Beijing Equity Exchange jointly held a special asset promotion conference. At the meeting, seven branches of Huaxia Bank, including the Beijing branch, and the credit card center jointly promoted the special assets to be disposed of more than 16 billion yuan.
According to Zhen Dangchao, deputy general manager of asset protection of Huaxia Bank's head office, the bank has successively held 10 special asset promotion conferences since 2023, aiming to speed up risk disposal, help banks reduce the non-performing rate, and invest the freed up credit resources and capital to other industries and enterprises to support the development of the real economy.
However, Huaxia Bank's asset quality is still not optimistic, not only is the non-performing loan ratio higher than the industry average, the capital adequacy level is low, and the performance continues to be sluggish. Not only that, but the bank has also been questioned by investors because of the lowest cash dividend ratio among many listed joint-stock banks.
This can't help but make people wonder, what happened to Huaxia Bank, which was once rated as "China's most influential wealth enterprise"?
First, the defective rate is high, and the ability to compensate for risks is insufficient
As of the end of the first quarter of 2024, Huaxia Bank's non-performing loan ratio was 1.66%, a slight decrease of 0.01 percentage points from 1.67% at the end of the previous year. In 2021 and 2022, the bank's NPL rates will be 1.77% and 1.75%, respectively, and the actual results of increasing asset collection efforts in recent years have been revealed.
However, a horizontal comparison shows that Huaxia Bank's non-performing loan ratio has long ranked first among the nine joint-stock banks. Not only that, according to the latest data released by the State Administration of Financial Regulation, the average NPL rate of commercial banks in China was 1.59% at the end of the first quarter, and the average NPL rate of joint-stock banks was 1.25%, which is obviously higher than the industry average.
Although Huaxia Bank's provision coverage ratio at the end of the first quarter increased by 0.51 percentage points from the end of 2023, it only reached 160.57%, which is also at the "tail of the crane" among the listed banks in the same industry, slightly higher than the 149.36% of Minsheng Bank. All the data seems to point to a conclusion, that is, Huaxia Bank is facing a lot of asset risk.
On June 13, Huaxia Bank announced that it had completed the issuance of indefinite capital bonds, with an issuance scale of 40 billion yuan. Hua Xia Bank said that the proceeds from the bonds will be used to supplement the bank's other Tier 1 capital in accordance with applicable laws and regulatory approvals.
The reason for such an urgent bond issuance is closely related to Huaxia Bank's weak capital adequacy ratio. As of the end of 2023, the bank's capital adequacy ratio, tier 1 capital adequacy ratio and core tier 1 capital adequacy ratio were 12.33%, 10.48% and 9.16%, respectively, which met regulatory requirements but was in the middle and lower reaches of the nine listed joint-stock banks.
In the first quarter of 2024, although Huaxia Bank's capital adequacy ratio, tier 1 capital adequacy ratio and core tier 1 capital adequacy ratio increased by 0.22, 0.27 and 0.28 percentage points respectively from the end of the previous year, its capital adequacy still ranked fourth from the bottom in the same industry and declined from the same period in 2023.
Second, frequent fines are collected, and the chairman's term of office is overdue
It is worth noting that the change of management of Hua Xia Bank has begun. As soon as he entered 2024, Guan Wenjie resigned from the relevant positions of executive director, president and special committee of the board of directors of Huaxia Bank due to work reasons; The bank's board of directors has agreed to appoint Qu Gang to succeed him as president, but his qualifications have not yet been approved by the State Administration of Financial Regulation.
Shortly after Guan Wenjie stepped down, Wang Minglan, chairman of the board of supervisors of Huaxia Bank, and Zeng Beichuan, director of Huaxia Bank, resigned from relevant positions due to retirement. In addition, among Huaxia Bank's current executives, Chairman Li Minji, who has served as the bank's chairman for more than seven years since April 14, 2017, has a controversial resume.
In 2019, the former China Banking and Insurance Regulatory Commission (CBIRC) issued the Guiding Opinions on the Avoidance of Employees of Banking and Insurance Institutions in the Performance of Their Duties, which set out job rotation requirements for key personnel and employees in important positions of banks, and the rotation period shall not exceed 7 years in principle. In other words, Huaxia Bank's chairman, Li Minji, has overstayed his tenure and may face penalties for violations.
In fact, since 2024, Huaxia Bank and its branches have successively received 13 fines, with a total penalty amount of more than 9.46 million yuan.
Among them, Huaxia Bank Beijing Branch was fined 4.61 million yuan for "seven crimes" such as inadequate management of personal business loans, linking deposits and loans of personal agricultural guarantee loans, serious violations of prudential business rules in the management of real estate development loans, and using improper means to issue loans, and relevant staff members were also warned and fined.
3. Revenue is "stuck in the neck", and profits are "braked sharply"
As the fifth listed bank in China, Huaxia Bank has set up 44 first-level branches and 78 second-level branches in 120 cities above the prefecture level in China, with a total of 982 business outlets, and has become one of the country's systemically important banks.
However, Huaxia Bank's revenue scale is stuck at the 100 billion yuan mark. After achieving revenue of 95.309 billion yuan in 2020 and further increasing to 95.870 billion yuan in the following year, the bank began to "reverse", with revenue of 93.808 billion yuan and 93.207 billion yuan in 2022 and 2023, respectively, down 2.15% and 0.64% year-on-year.
Breaking down the sources of income further, Huaxia Bank's net interest income decreased from RMB81.967 billion in 2020 to RMB70.442 billion in 2023, and its net fee and commission income also declined from RMB10.558 billion in 2020 to RMB6.402 billion in 2023, a decrease of 38.26%.
In contrast, Huaxia Bank's net profit attributable to the parent company from 2020 to 2023 will be 21.275 billion yuan, 23.535 billion yuan, 25.035 billion yuan and 26.363 billion yuan respectively, although it has maintained positive profit growth, the profit growth rate has slowed down significantly, from 10.62% in 2021 to 5.30% in 2023.
Huaxia Bank's other profitability indicators also declined to varying degrees, with the weighted average return on equity shrinking by 0.29 percentage points year-on-year to 8.71%; The return on assets edged down by 0.01 percentage points year-on-year to 0.66%; The net interest margin and net interest margin were 1.82% and 1.77%, respectively, down 0.28 and 0.30 percentage points.
Entering 2024, Huaxia Bank's performance has not improved, with operating income of 22.114 billion yuan in the first quarter, a year-on-year decrease of 4.34%; Among them, the fee and commission income was 1.494 billion yuan, a year-on-year decrease of 26.04%. The bank's net profit attributable to the parent company was 5.890 billion yuan, a slight increase of 0.61% year-on-year.
Fourth, the dividend ratio has not reached the standard for many years
Perhaps due to the pressure on asset quality or the impact of sluggish performance, Huaxia Bank's cash dividend amount in 2023 is very limited. According to the announcement on the implementation of equity distribution, Huaxia Bank distributed a cash dividend of RMB 0.384 (tax included) per share to all shareholders, with a total distribution of about RMB 6.111 billion, with a cash dividend ratio of 23.18%.
Huaxia Bank's cash dividend ratio ranks at the bottom among A-share listed joint-stock banks, and is nearly 2 percentage points behind the second-to-last Everbright Bank. Going back further, the bank's cash dividend ratio in 2021 and 2022 will be 22.10% and 24.35% respectively, a decrease of 1.17 percentage points in 2023 compared with the same period in 2022.
According to the statistics of Changjiang Business Daily, since 2014, Huaxia Bank's cash dividend ratio has not exceeded 25% in the past ten years, and the dividend ratio in 2016 and 2017 even dropped to about 10%, hovering at a low level for two consecutive years, until 2018, it improved, but it was only 13.38%.
However, Hua Xia Bank's Articles of Association clearly state that the accumulated profits distributed in cash in the last three years shall not be less than 30% of the average annual distributable profits attributable to ordinary shareholders realized in the last three years. In the case that the amount stipulated in the articles of association was not reached, Huaxia Bank still stated in its annual report that its "distribution plan complies with the provisions of the company's articles of association".
In the face of investors' suggestions to increase the dividend ratio and enhance shareholder confidence, Huaxia Bank said that the bank's dividend plan was made on the basis of considering the stability of investors' returns, the endogenous accumulation of capital affected by the macro environment, and its own sustainable development.
Huaxia Bank added that it will actively study and implement regulatory requirements, reasonably balance its own development and shareholder returns, ensure the continuity and stability of policies, promote shareholders to continue to share the fruits of business development, do a good job in dividends, continue to enhance its own value, and strive to give investors more satisfactory returns.