Many local banks planning initial share offerings

08:46, February 18, 2011      

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Several Chinese city commercial banks - lenders that own regional rather than national licenses - have submitted their applications for an initial public offering (IPO) to the securities regulator, with the Bank of Jiangsu planning to raise up to 10 billion yuan ($1.52 billion) on the A-share market, Chinese media reported on Thursday.

The Bank of Jiangsu is in the final stage of its IPO and has hired BOC International Holdings Ltd as its underwriter, the State-run Securities Times reported.

The listing would be the first IPO by a city commercial bank in three years. But the report did not say when the bank will launch the IPO.

Several other city commercial banks, including Bank of Chongqing, Bank of Shanghai, Zheshang Bank and Jiangsu Rural Commercial Bank, are also preparing for IPOs, the report said.

Chinese banks are in a capital-raising rush to shore up their balance sheets as the central bank is on the move to raise the capital requirement to further mop up liquidity after the unprecedented lending spree in 2009.

Institutional investors are eyeing the pre-IPO opportunities in the city commercial banks as many of them are faced with the increasing need for capital replenishment. China Pacific Insurance Group has reportedly laid a 520 million yuan bet on Bank of Tianjin, which also has a plan for a share sale.

Analysts said that the pricing of the IPOs would be a hard proposition for the city commercial banks as investors may worry about the potential risks in their balance sheets.

Smaller banks in China such as the city and rural commercial banks have played a key role in financing the country's small and medium-sized enterprises. But they usually have greater problems than the big four State-owned banks, with higher non-performing loan ratios, poor capital adequacy ratios and limited market penetration.

At present, China has a total of 112 city commercial banks, which account for 6.27 percent of the Chinese banking sector's assets. Three city commercial banks, Bank of Beijing, Bank of Nanjing and Bank of Ningbo, have successfully floated shares on the A-share market.

Analysts said that overall market conditions are now favorable for banking shares which were previously depressed by investors' concerns about policy tightening.

The share prices of the banks have picked up recently due to market expectations that rising lending rates will boost the banking industry's earnings outlook.

"Stable growth in the banks' earning can be expected, at least in the near term," said Wu Xiaoling, an analyst at Greatwall Securities. "We think that the long-term investment value of bank shares has emerged given their attractive valuations."

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