Chinese bank insiders swoop in on own shares on the cheap as Evergrande's debt crisis rattles market, drives valuations lower

Ping An Bank, China Zheshang Bank

Major shareholders and senior executives of several Chinese banks have been on a buying spree, picking up the shares of their own organisations on the cheap, after China Evergrande Group’s debt crisis rattled capital markets and drove down valuations.

At least six listed commercial lenders, including Ping An Bank and Bank of Shanghai have announced plans to buy back their own stocks this month, when financial markets were roiled by concerns of exposure to Evergrande.

China Zheshang Bank, a nationwide lender based in the Zhejiang provincial capital of Hangzhou, was the latest to join the fray, with a statement on Monday announcing that its vice-president Liu Long had spent 1 million yuan (US$154,952) to buy back 283,300 of the bank’s shares from the Hong Kong stock market. Jiangsu Expressway Company, the seventh-largest shareholder of Shanghai-listed Bank of Jiangsu, will raise its stake by 48 million shares, according to a September 24 statement by the lender.

The wave of buy-backs may instil some confidence in China’s beleaguered banking stocks as they size up their exposure to Evergrande’s US$300 billion liabilities. Chinese bank stocks trade at an average discount of 44 per cent to their book value, cheaper than any other industrial sector in the equity markets, according to data provided by Shanghai DZH.

Ping An Bank, China Zheshang Bank

A map showing China Evergrande Group’s development projects in China on a wall in Beijing on September 21, 2021. Photo: AP.

Their asset quality and bad loans remain a perennial concern among investors amid the relentless government campaign to cool the property market. Evergrande’s debt woes have exacerbated the angst, causing a gauge of 43 banks on the Shanghai and Shenzhen exchanges to fall by almost 5 per cent from a high this month.

Chinese banks are overly worried about any potential contagion risk from Evergrande, according to China Merchants Securities and China Everbright Securities.

“We can be a bit optimistic about banking stocks [heading] into October, and valuations are expected to stabilise,” said China Merchants’ analyst Liao Zhiming. “The low valuations have already priced in the pessimistic outlook and banks’ credit growth may have already [fallen into a] trough in September.”

Ping An Bank, China Zheshang Bank

A woman receives aid on the ground next to Du Liang, general manager and legal representative of China Evergrande Group's wealth management division, while people gathered to demand repayment of loans and financial products at Evergrande's headquarters in Shenzhen on China September 14, 2021. Photo: Reuters.

Bank stocks have overreacted to Evergrande’s debt crisis, which has yet to have a material impact on the overall industry, and the sell-off on the sector mainly stems from soured sentiment, according to Everbright’s analyst Wang Yifeng.

As many as 20 banks have declared their distance from Evergrande, either stating that their loans are unexposed to the Shenzhen-based developer, or that the exposure is under control.

China Minsheng Banking Corporation, the Agricultural Bank of China and China Citic Bank are three of the largest creditors to Evergrande, according to CCB International. Minsheng, China’s largest non-state lender, has 29.3 billion yuan of loans due to the developer, while Agricultural Bank’s books amounted to 24.2 billion yuan, according to CCB’s estimates.

Minsheng Bank’s shares rebounded 0.8 per cent to 3.91 yuan in Shanghai after hovering near a seven-year low. The stock of Agricultural Bank added 0.7 per cent to 2.95 yuan.

Zheshang Bank’s shares advanced by 0.6 per cent to 3.55 yuan in Shanghai after its buy-back was announced. The bank’s president Zhang Rongsen also said last week that he would buy 300,000 shares for 1.07 million yuan, his fourth buy-back since last year.

“Bank valuations have always priced in severe credit quality hits,” said Lawrence Chen, a banking analyst at CCB International in Hong Kong, who recommends buying China Merchants Bank and Ping An Bank. “We see opportunities to accumulate some of the stronger banks we cover, whose valuations came off in the recent bout of risk aversion.”

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