Wealth Divide: Banks In China's Poorer Regions Bear Brunt Of Margin Squeeze

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The latest annual results from Bank of Gansu and Jiangxi Bank show their margins are getting compressed by high interest payments on their time deposits and falling loan yields image credit: Bamboo ...

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The latest annual results fromBank of Gansu Co. Ltd. andJiangxi Bank Co. Ltd. — regional lenders anchored in two of China's less developed provinces — paint a bleak picture of this corner of the Chinese financial sector.Unlike those peers that benefit from deep pools of low-cost demand deposits generated by big corporate customers and high-velocity transaction flows, Jiangxi Bank and Bank of Gansu rely heavily on time deposits that carry much higher interest rates. That funding structure is a costly difference and one that's difficult to escape.And even though Jiangxi Bank's NPL fell, it's still higher than the average for large commercial banks. Meanwhile, the ratio of its provisions relative to bad debt, at about 160%, is lower than the 200%-plus industry norm. That means Jiangxi Bank operates on a thinner cu","collect":0,"end_time":0,"defaultTopTitle":"benzinga.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"601398":"工商银行","BK0077":"质押式回购","RF":"地区金融","BK0015":"沪股通50","BK0187":"一线龙头","BK0028":"国家队","LU2495084118.USD":"ALLIANZ CHINA A-SHARES \"ATH\" (USDHDG) ACC","BK4211":"区域性银行","LU1997244956.HKD":"ALLIANZ CHINA A-SHARES \"AT\" (HKD) ACC A","LU1880398471.USD":"AMUNDI FUNDS GLOBAL EQUITY \"A2\" (USD) ACC","LU1880398554.USD":"AMUNDI FUNDS GLOBAL EQUITY \"A2\" (USD) INC","BK0175":"白马股","LU0405327494.USD":"ALLSPRING CHINA A FOCUS \"I\" (USD) ACC","BK4585":"ETF&股票定投概念","LU2289578879.USD":"ALLIANZ CHINA A OPPORTUNITIES \"AT\" (USD) ACC","BK0196":"行业龙头","LU0359201612.USD":"贝莱德中国基金A2","BK0010":"央企","LU0359202008.SGD":"Blackrock China Fund A2 SGD-H","LU1997245177.USD":"安联神洲A股基金","BK0278":"货币金融","LU1023057109.AUD":"BGF CHINA \"A2\" (AUDHDG) ACC","LU0405327148.USD":"ALLSPRING CHINA A FOCUS \"A\" (USD) ACC","LU1883839398.USD":"AMUNDI FUNDS INCOME OPPORTUNITIES \"A2\" (USD) ACC","BK0183":"MSCI概念","BK0188":"融资融券","BK4588":"碎股","LU1997245094.SGD":"安联神州A股基金AT Acc SGD","BK0012":"证金概念"},"translate_title":"贫富差距：中国贫困地区的银行首当其冲地受到利润率挤压","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"601398":1,"RF":1.5},"content_text":"The latest annual results from Bank of Gansu and Jiangxi Bank show their margins are getting compressed by high interest payments on their time deposits and falling loan yields\nimage credit: Bamboo Works\nThe latest annual results from Bank of Gansu Co. Ltd. (2139.HK) and Jiangxi Bank Co. Ltd. (1916.HK) — regional lenders anchored in two of China's less developed provinces — paint a bleak picture of this corner of the Chinese financial sector.\nThe two banks are structurally more susceptible to margin pressure than big state-owned national lenders or regional banks in wealthier provinces.\nUnlike those peers that benefit from deep pools of low-cost demand deposits generated by big corporate customers and high-velocity transaction flows, Jiangxi Bank and Bank of Gansu rely heavily on time deposits that carry much higher interest rates. That funding structure is a costly difference and one that's difficult to escape.\nFor Jiangxi Bank, retail time deposits, which carry an average interest rate of 2.61%, account for almost 90% of its retail deposit base, which make up a little more than half of its total deposits. By comparison, the bank pays a far lower 0.06% for demand deposits. The story is similar for Bank of Gansu, which is even more reliant on retail depositors.\nIn an apparent effort to defend their bottom lines against these headwinds, Bank of Gansu and Jiangxi Bank are doing something that doesn't look so prudent — reducing their buffers against loan losses.\nAnd even though Jiangxi Bank's NPL fell, it's still higher than the average for large commercial banks. Meanwhile, the ratio of its provisions relative to bad debt, at about 160%, is lower than the 200%-plus industry norm. That means Jiangxi Bank operates on a thinner cushion against any major crisis that could be triggered by a wave of defaults.\nBank of Gansu has an even weaker buffer, which eroded further after it cut its loan-loss provisions to about 131% of NPLs at the end of last year, a good 3 percentage points lower than a year earlier. Helped by this trick, its net profit actually grew 1% last year despite a 9% fall in its operating income.\nThe bank's bad loan ratio held steady at 1.93% last year, but it also sold a large chunk of its bad assets to an asset management company that is a subsidiary of one of its large shareholders. That kind of clean-up – basically shifting bad assets from a listed company to an unlisted related company – is an important reminder that headline numbers of Chinese banks, especially small ones, often require some scrutiny.\nNow, the biggest challenge for the two banks is the erosion of their capital buffers. In effect, they can't generate sufficient capital to cover their business growth. Particularly, Jiangxi Bank's Common Equity Tier 1 (CET1) capital ratio fell below 9% as of the end of December, dangerously close to the regulatory minimum requirement.\nIf their capital deterioration continues, these lenders will have little choice but to ask their controlling shareholders, usually regional government entities, for fresh injections in exchange for new shares. That would cost other shareholders in the form of dilution.\nThe figure for many large banks in China is also below 1, such as the 0.47 for ICBC's (1398.HK; 601398.SH) Hong Kong-listed shares, reflecting investor concerns about this group in the current weak economic climate. But if life is hard for big banks, it looks even more miserable for smaller ones, especially in China's less developed regions.\nTo subscribe to Bamboo Works weekly free newsletter, click here\nBenzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.\nTo add Benzinga News as your preferred source on Google, click here.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"isVideo":false,"video":null,"symbols":[],"gpt_button":0,"need_auth":false,"need_login_tip":false,"code":"91000000","status":"200"},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"tenantId":"TBGLOBAL","deviceId":"web-server-community-laohu8-v3","version":"4.40.0","shortVersion":"4.40.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2624074513","isCrawlerRequest":true}