Investors wary of Chinese bank stocks
President Xi’s mission to remove any systemic risk posed by the financial sector in China has made investors in Chinese bank stocks wary of their holdings. Moreover, new investments into these banks could be met with hesitation as investor confidence over financial institutions in China (YANG) (FXP) (CHAD) stands shaken with revelations such as the recent regulatory crackdown on China Minsheng Bank (CGMBF) (CMAKY) and Anbang Insurance Group.
31% of banks failed the LTD stress test
Frontera analyzed these banks based on the individual loan-to-deposit (or LTD) ratios reported by Shanghai Stock Exchange listed banks. Our assessment revealed five banks with LTD % higher than the previously legally mandated threshold of 75%. The table above enlists these 5 banks along with their respective LTD ratios and other key financial indicators. Considering the regulatory crackdown that is currently upon the financial system in China, these banks are more vulnerable to scrutiny. Given their higher LTD ratios, these banks could have resorted to off-balance sheet financing which equates to a word of caution for investors in these Chinese (FXI) (ASHR) (YINN) banking stocks.
Among the above, China CITIC Bank (CHBJF) (CHCJY) showcases a very attractive price-to-book multiple of 0.59. However, at an LTD% of 85.97, much higher than the 75% mandated 2 years ago, investors are likely to tread carefully. Returns from the bank haven’t been good so far this year either.
Let’s now take a look at the 3 Chinese banks that are currently trading at exceptionally attractive valuations.