Bankrupt banking, and assets of questionable value

Two news stories that seem somewhat telling about the state of China’s banking industry:

First, Shenzhen Development bank is hoping to raise RMB 4.2 billion through a share sale, to deal with “chronic capital shortage,” it’s planning on selling 120 million shares to Baosteel, hoping to bring its capital adequacy up to 8%. Oh, and by the way, it made a 93% profit between January and December.

Second, Everbright Bank, the 8th largest bank in China, is planning on an IPO this summer. The bank is heavily in debt due to heavy losses on non-performing loans. Central Huijin Investment Co. (government-owned investment fund) which owns 70% of the bank, is injecting 20 billion into it.

There seems to be a trend here.

Theoretically the Shenzhen Development bank could be facing a “chronic capital shortage” because it just grows so dag gum fast, but it seems to be a relative constant in Chinese banking that banks have a hard time covering their liabilities. IPO’s inject huge amounts of capital into the banks and often pull them out of technical bankruptcy, but neither of these stories say anything about how to resolve “Chronic capital shortages,” or “heavy losses on non-performing loans.”

I don’t know how the stock market is going to look in summer of next year, but I’m pretty sure if these shares were sold last year, they’d sell like hot cakes.

Bradley Gardner