ICBC : Industrial and Commercial Bank of China (1398)

(21-05-2016, 02:12 PM)stam Wrote: Near 52-weeks low, is this ICBC still worth a buy?

If you wanna buy just be prepared for a steep drop down. China's big banks NPLs are rising fast  Hence the recent move to do debt to equity swaps which is just repackaging the problem LOL..

However they will need to maintain their place as a reserve currency, so no matter what happens Beijing will bailout their banks as needed, just like the FED did during GFC.

China's Subprime Crisis Is Here

http://www.cnbc.com/2016/04/27/imf-says-...blems.html

(21-05-2016, 05:57 PM)BlueKelah Wrote:

(21-05-2016, 02:12 PM)stam Wrote: Near 52-weeks low, is this ICBC still worth a buy?

If you wanna buy just be prepared for a steep drop down. China's big banks NPLs are rising fast  Hence the recent move to do debt to equity swaps which is just repackaging the problem LOL..

However they will need to maintain their place as a reserve currency, so no matter what happens Beijing will bailout their banks as needed, just like the FED did during GFC.

China's Subprime Crisis Is Here

http://www.cnbc.com/2016/04/27/imf-says-...blems.html

Yes, NPLs are rising, but the talk about the loans bubble bursting has been going on for several years. Nothing has happened on a big scale thus far.
I owned ICBC about 2 yrs ago.
The valuation is dirt cheap as everyone is afraid of the NPL ratio. True enough, it has been rising steadily, but this information is already baked into the share price. It's a known known. 
How it continues from here, is a known unknown. Nobody knows how it'd turn out, but everyone knows the problem is there.

The main difficulty i had, was that even the financials were not 100% trustworthy. Not sure how much of this official data is true.



https://thumbtackinvestor.wordpress.com/

This was part of an insightful speech made recently by Xiang SongZuo, former chief economist at Agricultural Bank of China (he only left a few months back). He stated that 2% NPL is way understating the bad debt situation as it did not include restructured loans. His statement is significant given his former position at one of the big 4.

Given the high leveraged business model of a bank, a few % increase in NPL can easily wipe out the equity base. That say, the big 4 are probably too big to fail for China.

各位都知道，我们现在全部商业银行体系的不良贷款在今年一季度都突破了2%，但是我可以告诉各位，2%是大大低估了银行的不良贷款。很多都是通过调胀，通过涨息，通过所谓的重组，把不良贷款暂时掩盖住了。光86家钢铁企业，负债总额3.3万亿，其中绝大部分都是银行贷款，很多钢铁企业动辄就是几百亿，甚至上千亿，几千亿。我想这种风险时间关系我不展开去说，很多的例子，总有一天大家要承担。很不幸的是这种风险的承担，最终可能又是由中国的老百姓来承担，那不就是通胀吗？所以提出债转股的时候好像媒体采访我要我写文章，我是非常明确的反对什么债转股？我说一个公司，一个企业，他借钱的时候不能按时还本付息，现在银行转过来变成他的股东，他能够给银行分红吗？玩这种把戏，很欣慰的这一次人民日报的权威人士也等于是否定了债转股，僵尸企业该退出的就得退出，该破产的就得破产，这种痛苦今天不想承担未来的痛苦只会更大。当有一天我们银行的资本被不良贷款，被坏账全部吃掉的时候怎么办？

http://money.163.com/16/0517/19/BN9QK3HQ00252G50.html

The understated NPL of China bank, is more likely due to different norm applied by China banking sector, vs the rest of the world. It is less likely on trustworthiness, IMO.

The "normalized" NPL ratio, is a biggest puzzle for China bank investment. I have read many articles on the matter. Most "Western" articles "estimated" as about 10%. I am more inclined to believe the "normalized" NPL ratio should be around 5% (in 2014), which is also the figure estimated by recent PwC HK. (I have lost the link).

One supplementary support, are the Special Mention/NPL published in AR, which is likely very close to the "normalized" NPL ratio, IMO.

Will the 5% NPL ratio, wipe out the equity base? I am more optimistic on the matter. Of course, the China banks have more challenges ahead, which include the impact(s) from financial liberalization in China, and higher regulatory cost.

(not vested in China banks, but monitoring)

ICBC launches robo-adviser service for wealth-management products
The nation’s largest bank by assets is first of China’s ‘big four’ lenders to offer automated advice and product service

Maggie Zhang
PUBLISHED : Tuesday, 14 November, 2017, 8:30am
UPDATED : Tuesday, 14 November, 2017, 8:30am

Industrial and Commercial Bank of China (ICBC) has applied the latest artificial intelligence-led technology to its wealth-management operations, reflecting just how the country’s big banks are now fighting hard to gain an edge over rivals in the sector.

Its newly launched “robo-adviser” service will see computer programmes dish out investment advice to retail investors over its mobile banking platform, becoming the first among the nation’s “big-four” state-owned lenders to unlock the potential of the hot new service being adopted rapidly by the industry, worldwide.

The value of China’s total robo-adviser services, including those offered by banks, assets managers and fintech companies, is expected to top 5.22 trillion yuan (US$783 billion) by 2020, according to data from consultancy Analysys.

More details in http://www.scmp.com/business/companies/a...t-products

Much has been reported about the China property crisis, economic situation. So what is the impact to China Big banks' financials and as compared to Chinese property developers' financials ?

imho, given the on-going challenges, ICBC's financial result can be considered pretty respectable.

But let's also compare OPMI investment alternatives :
Dividends yield wise - DBS 6.3%* vs ICBC 8.7%**(need to factor in tax, forex)
* https://www.dividends.sg/view/D05
** http://www.aastocks.com/en/stocks/quote/...mbol=01398
Is the div yield diff attractive enough ?

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https://www.businesstimes.com.sg/interna...r-downturn
https://www.businesstimes.com.sg/propert...est-banks1
https://www.businesstimes.com.sg/compani...023-profit

Industrial and Commercial Bank of China Limited 1398 HK Earnings Results Analysis Discussion
https://www.youtube.com/watch?v=WW1H4Cm5oLg

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Singapore's DBS bank confident of 15%-17% ROE in next 3-5 years, CEO says
https://www.channelnewsasia.com/business...ys-4227941

Hi Dreamybear,

In addition to comparing the dividend yield of 6.3% vs approx 7.5% (after tax), there is a need to compare the risk free rates as well. In HK, 3 month HIBOR is 4.71%; in SG, 3 month SORA is 3.67%. Nett nett there is not much difference in attractivness to div yield factoring this.

Hi dreamybear,

These dividend yields are pretty good. Since they don't pay out most of their earnings, it means that their earnings yield are probably in mid single teens (which translates to a mid single digit P/E). To get "mid single teens" earning yield, Mr Market is probably pricing in either earnings peak (ie. the "E" is as good as it got") and/or there is a crisis that is tearing up future prospects.

Putting non-interest income (investment banking, trading or brokerage activities) aside, the core earner of banks is interest income, which is generated by borrowing short term and lending long term. Let's just focus narrowly on real estate lending - in essence, developers and their customers (home buyers) are banks' customers. When sentiment sours, sales drop and developers get hit since they have to generate new sales to create new revenue. But for interest income, banks do not need to generate new loans to create new revenue because their revenue can be created upon earning the NIM of past loans.

So what does this mean? It means banks' earnings are a lagging indicator for its customers' fortunes. I have to admit, I have not studied deeply into ICBC's earnings but the below extract from the media just doesn't make a lot of sense to me:

ICBC posted a non-performing loan ratio of 1.36 per cent at the end of 2023, unchanged from the end of September. Its real estate non-performing loan ratio was 5.37 per cent at the end of last year, compared with 6.14 per cent a year earlier.

Chinese SOEs have been "encouraged" to pay out more of their "excess capital", which is good. But at the same time, the SOE banks have been "encouraged" to lend to developers. I am not sure if lending standards have/will be relaxed but to save something, you can't use the old standards for sure. Financial results are formed largely based on accounting techniques. So, the old adage of "pretend, extend and amend" does work wonders at times. Sometimes, it delays the inevitable but sometimes delaying does avoid the inevitable.