Most large banks in mainland China saw their price to tangible book value ratios decline in the past four months despite gains in share prices, likely due to a fast buildup of assets.
Among 27 banks with assets greater than 1 trillion yuan at the end of March, the majority recorded a drop in their price to tangible book value (TBV) ratios as of Aug. 7 compared with April 3 levels, according to an S&P Global Market Intelligence analysis.
Shenzhen-based China Merchants Bank Co. Ltd. remained the most expensive bank based on price to TBV, with its ratio at 0.83, followed by Bank of Chengdu Co. Ltd., with a ratio of 0.80. The ratios of the two lenders declined nearly 7% during the covered period.
Bank of Hangzhou Co. Ltd., with a price to TBV of 0.79, took third place, swapping places with Bank of Ningbo Co. Ltd., which recorded a ratio of 0.75. Bank of Nanjing Co. Ltd. kept the fifth spot with a price to TBV of 0.71.
For example, the aggregate book value of six state-owned banks increased 3% in the first quarter of 2024 from the fourth quarter of 2023, Tan said. In comparison, their aggregate book value grew 8% in 2023.
The median price to TBV of the 27 banks in the Market Intelligence analysis was 0.44.
China's Big Four banks — Industrial and Commercial Bank of China Ltd., Agricultural Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. — had ratios ranging from 0.40 to 0.44.
Shenyang-based Shengjing Bank Co. Ltd., once controlled by the bankrupt real estate giant China Evergrande Group, was the least expensive bank in the Market Intelligence analysis, with its price to TBV ratio at 0.08. It was followed by Tianjin-based China Bohai Bank Co. Ltd., which had a ratio of 0.16.
Banks outperform
The Hang Seng SCHK Mainland China Banks Index gained 4.6% year to date as of Aug. 8, while the CSI 300 Index, a key benchmark for shares listed in mainland China, edged 2.9% lower.
Multiple factors, including the National Nine Articles, first-quarter earnings surprise, anticipation of interim dividend and the property-supporting policy package released mid-May, catalyzed the rally, according to Hong Kong-based brokerage CLSA.
Despite some downside risks, such as net interest margin and insufficient loan demand, banks would be relatively resilient, Hu Shen, senior research analyst at CLSA, said in a July 1 note.
As of Aug. 12, US$1 was equivalent to 7.175 Chinese yuan.