Shanghai Pudong Development Bank (SPD Bank) has further accelerated its "village-to-branch" transformation initiative.
On December 3, SPD Bank’s Dalian Ganjingzi Village Bank received approval from the Dalian Financial Regulatory Bureau for dissolution. After 15 years of operation, the rural bank will be formally integrated into SPD Bank’s system, becoming the Dalian Suoyuwan Branch.
This marks the sixth such conversion this year, following similar transitions of Fumin, Zezhou, and Zouping village banks under SPD Bank’s umbrella. The number of its rural banks has now been reduced to 22.
For these rural banks, integration into the parent bank’s system promises significant improvements in risk control, digital capabilities, and resource allocation. This move aligns with regulatory calls for stronger oversight by initiating banks and faster reforms among small and medium-sized financial institutions. It also echoes SPD Bank’s recent management emphasis on "moderately expanding into lower-tier markets."
Against a backdrop of narrowing interest margins and sluggish fee-based income, county-level markets have emerged as a new growth frontier, driven by differentiated industrial foundations and untapped consumer potential. Major banks, including SPD Bank, are increasingly turning to these markets for incremental growth.
SPD Bank’s participation comes amid persistent challenges. During the current rate-cutting cycle, its weaknesses in asset pricing and deposit gathering have been exposed, with its net interest margin (NIM) lagging behind peers. Lingering effects from a 2017 fraud case at its Chengdu branch, involving billions in bad loans, have also weighed on performance.
Since 2024, a new leadership team—led by Chairman Zhang Weizhong and President Xie Wei—has prioritized a "digital-intelligent" transformation, focusing on five key sectors: technology, supply chain, inclusive finance, cross-border services, and treasury management. Lower-tier markets are becoming a critical battleground in this strategy.
**Turnaround in Performance** In the first three quarters of the year, SPD Bank reported revenue of 132.28 billion yuan and net profit of 3.596 billion yuan, up 1.88% and 10.21% year-on-year, respectively. This rare "dual growth" among A-share peers marks a successful turnaround and extends the bank’s profit recovery from 2024.
The rebound was driven by stabilized credit operations, with net interest income rising 3.93%. While fee-based income, investment gains, and fair-value changes declined by 1.39%, 1.27%, and 59.52%, respectively, net interest income—accounting for nearly 70% of revenue—proved pivotal. This follows five consecutive years of contraction from 2020 to 2024, suggesting a potential bottoming-out for the bank’s credit business.
Improved asset quality and pricing contributed to the gains. Loans and deposits grew 5.16% and 8.84% from the start of the year, maintaining above-peer expansion. Analysts estimate that the unannounced Q3 NIM has entered an upward trajectory, though SPD Bank’s NIM has long underperformed, ranking second-lowest among A-share joint-stock banks.
**Structural Challenges and Strategic Shifts** SPD Bank’s historical reliance on corporate banking—once earning it the title "King of Corporate Banking"—has been a double-edged sword. Post-2022, it scaled back high-risk assets in real estate and tightened client screening, leading to a rapid decline in corporate asset yields. Meanwhile, inconsistent retail strategies and weak deposit-gathering capabilities further pressured NIM.
The new management has recalibrated priorities, shifting from the "Three Banks" (light, green, and panoramic) to "Four Strategies" (regional, sectoral, online, and digital). Initiatives include reinforcing the Yangtze River Delta’s strategic importance, upgrading its regional headquarters, and implementing corporate client whitelists to enhance credit quality over 3–5 years.
To optimize NIM, SPD Bank is adopting a "compress-low, boost-high" approach in asset allocation, targeting key sectors and regions while emphasizing settlement deposits to strengthen liabilities. President Xie Wei highlighted proactive balance-sheet management, noting that a 1-basis-point NIM improvement could boost revenue by ~800 million yuan.
**Persistent Risks** Despite progress, concerns linger. SPD Bank’s Q3 non-performing loan (NPL) ratio fell 0.07 percentage points to 1.29%, with loan-loss coverage up 11.08 points to 198.04%. However, its credit impairment losses remain the highest among peers, while coverage sits mid-tier—indicating unresolved bad loans.
Notably, its western region continues to struggle. The fallout from the 2017 Chengdu scandal, involving 775 billion yuan in shell-company loans, has led to over 100 billion yuan in impairments, with no clear end in sight.
**Betting on Lower-Tier Markets** SPD Bank’s performance has long mirrored macroeconomic cycles. After corporate banking thrived during the property and infrastructure boom, its failed retail pivot—marked by aggressive credit card growth and rising defaults—led to leadership changes in 2023.
The current strategy leans into digital transformation and lower-tier markets, where resilience has been demonstrated by peers like Agricultural Bank of China. Analysts note SPD Bank’s "Five Sectors" reflect a corporate-client downshift toward SMEs, improving loan yields and deposit growth (now 3.68 points above loan growth).
Deputy President Kang Jie outlined plans to expand into high-potential counties and cities based on industrial clusters and fiscal metrics, aiming to "moderately deepen regional coverage." Concurrently, absorbing village banks—once independent legal entities lacking parent-bank synergies—will enhance competitiveness.
Yet challenges remain. Established players dominate lower-tier markets through years of groundwork. Analyst Wang Xianshuang stresses that SPD Bank’s asset-quality issues stem from governance instability and execution gaps, urging sustained management stability for long-term gains.
"With steady leadership and tech-driven reforms," he said, "client expansion efforts should yield results within 3–5 years."
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