chinese banking system

State of the Chinese economy and the

Chinese banking system

2 unit.org.au/blog/

Project Director

Acknowledgements

Trevor Tsui

(IV LL.B / Commerce)

Project Analysts

Lisa Chhang

(II Commerce)

Eugina Kwon

(II LL.B / Commerce)

Buwaneka Arachchi

(II LL.B / Commerce) Sam Tidswell


Shirley Song


Olivia Guo

(II LL.B / Commerce) Vishal Uppal

(I LL.B / Commerce)

3 unit.org.au/blog/

This presentation has been prepared by the University Network for Investing and Trading (UNIT) to provide information to inte rested readers, and is not to be used, construed or

appropriated as material providing investment advice. Forecasts, analyses or assumptions contained herein are the personal opinions of the author‟s, based on publically

available information. This presentation is not to be plagiarised in whole or in part without the consent of UNIT‟s key executive members.

In preparing this presentation, UNIT relies upon and assumes, without independent verification, the accuracy and completeness of publically available information. UNIT takes no

responsibility whatsoever for investment decisions or otherwise made in reliance upon information contained in this presentat ion. It is the responsibility of the reader to verify the

accuracy and completeness of information contained in this presentation, if the reader chooses to make an investment decision or provide investment advice based on publically

available data contained herein. Any forecasts, assumptions or analyses contained in this presentation are the personal views and opinions of the author‟s and are not reviewed

by an independent third party for their reasonableness, accurateness and completeness. As such, UNIT, its executive members and participants do not make any

representations or warranties as to the accuracy and reliability of the information contained herein.

Although a university affiliated society, the material contained in this presentation and all others, does not purport to ass ist students in assignments or provide assisted learning

material for finance related courses or other relevant subjects. Subject matter that may be identical or similar is merely by coincidence, and at no point in time does UNIT intend

for any of its publications to provide aid materials to students in their relevant coursework.

Disclaimer

Overview of China‟s economy and national debt 5

Overview of China‟s financial market 9

Overview of China‟s banking sector 11

Study on Agricultural Bank of China 12

Study on Bank of Communications 14

Study on Bank of China 16

Study on Industrial and Commercial Bank of China 18

Study on Hua Xia Bank 20

5 unit.org.au/blog/

State of the Chinese Economy Overview of China‟s economy

While GDP growth is expected to further compress and stabilise in the short-term, China‟s transition to

a more sustainable economy driven by consumer consumption, lower aggressive lending practices

and higher credit quality presents an optimistic long-term outlook

Overview

HSBC PMI relative to 50.03

• Key reforms to tighten credit markets and transition into a middle-class

consumption driven economy

─ GDP growth is expected to compress further1

─ Historically high levels of GDP growth (2008 – 2010) were driven by extreme credit expansion, spurred on by government stimulus and

subsequent private investment activity2

─ Property controls and tighter credit lending standards are now in

place to curb unsustainable growth in credit and private investments,

which have inflated the economy

• Robust levels of investments in construction and property are likely to be

supported by China‟s rural-urban migration plan

GDP growth (%)

(1) Source: Rabobank (13 Nov 2013). (2) Source: J.P. Morgan (6 Dec 2013). (3) Note: values below 50.0 indicate “contraction”, while values above 50.0 indicate “expansion”. (4) Note: Represented by solid orange line.

Company 2014E

Deutsche 8.6%

UBS 7.8%

BAML 7.6%

Bloomberg mean4 7.5%

Goldman Sachs 7.4%

Nomura 7.4%

(3.5)

(2.5)

(1.5)

(0.5)

0.5

1.5

2.5

Feb-12 May-12 Aug-12 Nov-12 Feb-13 May-13 Aug-13 Nov-13 Feb-14

PMI Manufacturing PMI Services

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

2008 2009 2010 2011 2012 2013 2014E

6 unit.org.au/blog/

State of the Chinese Economy National debt

The volume of debt circulating in China‟s financial system does not appear to be an imminent threat.

Rather, growth in credit represents a key risk for the economy that has raised concerns regarding

credit quality. Thus, negative shocks are likely to exacerbate default fears given uncertainty

Overview

Global debt / GDP ratios2

• The Chinese economic stimulus plan announced on 9 Nov 2008

(c. A$869bn1) ignited credit markets and spurred private investments in

infrastructure and real estate

─ Stimulus focused, inter alia, on infrastructure investments,

supporting iron and steel producers, as well as property developers

─ Prior to this the interest rate was cut and measures were also

introduced to spur property sales

• However, a global comparison reveals that China‟s total-debt-to-GDP is

in fact relatively low against major developed countries, suggesting that the quantity of debt in the market is not problematic

• Growth in the volume of debt appears to be the salient concern, given the abnormality and irregularity of the spike

─ Inherent in the issue of “growth in credit” is the concern that aggressive lending has jeopardised the quality of the loans, such

that debt securities being actively traded in the market may carry a

high level of risk, unbeknown to its holder

─ This also raises an issue of “chain causality”, as it is not clear

whether conventional banks carry loans to on-lenders on their books, who may be exposed to borrowers of high default risk

─ On-lenders tend to be those operating in the shadow banking sector, who have lower lending standards and primarily lend to a high risk

segment

─ This „uncertainty‟ means that any default or collapse in the shadow

banking market is likely to severely affect conventional banks as

there is no certainty as to whether these banks are indirectly exposed through causality chains

Total debt / GDP ratio1

(1) Note: Converted to AUD based on AUD / USD of 1.483 on 9 Nov 2008. (2) Source: J.P. Morgan (6 Dec 2013).

7 unit.org.au/blog/

State of the Chinese Economy National debt

Uncertainty has arisen from rampant shadow banking activity through trust products that have been

predominantly tied to loans made to coal operators. Key reforms, including anti-pollution policies, have

increased borrowing costs, depressed coal prices and increased operating costs in the coal industry

Overview

Wealth Management Product issurances2

UNIT is a publically listed commercial bank that is one of China‟s top

4 lenders and advances a number of loans to on-lenders in the

shadow banking industry

The on-lender specialises in project financing for coal operators and

coal powered generators

Given China‟s new energy policies, a number of coal power

generators have closed, of which the on-lender is exposed

Problematically, the on-lender provides project financing to coal

operators who are heavily exposed to coal power suppliers who have

been severely effected by China‟s clean energy policy

Non-performing loans and write downs increase, which subsequently

increases the credit risk of UNIT‟s loan portfolio as the on-lender is

now subject to financial stress. As the market is unaware of the bank‟s exposure, fear plagues the financial sector

• Shocks to the wholesale debt and general credit markets caused by

defaults of trustees and shadow banking lenders are likely to be

exacerbated by the retail sectors exposure to the shadow banking sector through Wealth Management Products (WMPs)

– WMPs in shadow banking to acquire working capital

– Offer higher yields than deposits and marketed as „risk free‟

– New WMPs are issued to satisfy the maturation of old WMPs

– Therefore, the default of one issuer will create a negative shock on the demand for WMPs potentially causing other issuers to default

when old WMPs mature

• Default on WMPs increases NPLs and credit risk of conventional banks

as the retail market, through its exposure, is impacted

Chain of causality illustration

(1) Note: J.P. Morgan (3 Feb 2013).

UNIT

On-lender

Coal operator

1

Coal operator

2

Coal power

plant operator

1

2

3 4 4

5

1

2

3

4

5

8 unit.org.au/blog/

44.0%

45.0%

46.0%

47.0%

48.0%

49.0%

50.0%

51.0%

52.0%

53.0%

54.0%

2004 2005 2006 2007 2008 2009 2010 2011 2012-

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

China UnitedStates

UnitedKingdom

Japan Germany Australia

State of the Chinese Economy Credit risk

The relatively high savings rate suggests that conventional banks appear to possess sufficient buffer

against financial stress, given a non-reliance upon wholesale debt markets, contrasting the collapse of

banks including Northern Rock and Nippon Bank

Chinese economy (deposits / GDP ratio) Global comparison (deposits / GDP ratio)

9 unit.org.au/blog/

China‟s shadow banking system is worth US$7.5tn and has driven abnormal GDP growth (easy

credit). As the government tightens credit growth, RMB$634bn of trust loans to property developers

and the troubled coal mining industry are in jeopardy. RMB $5bn of trust WMPs also mature this year

Shanghai Composite Index rebased to 100

State of the Chinese Economy Chinese financial market

80.0

85.0

90.0

95.0

100.0

105.0

110.0

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14

19 Jun 2013: Federal Reserve Chairman, Ben Bernanke, announces

plans to gradually taper QE by the end of 2013

20 Jun 2013: Markets respond to Fed‟s tapering plans – Chinese inter-bank rates

(Shibor) spikes, overnight repo at record high 12.06% and 7-day repo soars to 13.85%. PBoC abstains from injecting liquidity. Coupled effect results in concerns

of a cash-crunch from illiquidity

Jan 2014: Increasing coverage of China Credit Trust Co. injects fear in the market, as its RMB$3bn WMP matures at

the end of Jan. The money was raised in 2010 under a product called “China Credit / Credit Equals Gold #1 Collective Trust Product” to lend to an unlisted coal company, Shanxi Zhenfu Energy Group, which declared

bankruptcy in 2013. The product offered a 10% yield compared to 3% deposit rate

27 Jan 2014: China Credit Trust Co is bailed out by the Chinese government, and Premier Li Keqiang states that

some defaults will be unavoidable as government policy shifts to credit tightening. Market obtains relief from government support over a hard stance

17 Mar 2014: Real estate developer, Zhejiang Xingrun Real Estate collapses with insufficient

cash to meet debt repayments, holding RMB$3.5tn in debt. China Construction Bank holds RMD$1bn of debt in the company

7 Mar 2014: Shanghai Chaori Solar Energy

Science & Technology Co. defaults on corporate bond`

10 unit.org.au/blog/

Since Jan 2013 a significant support level has developed at c. 2000. Downward resistance and

sideways price action has created a bilateral wedge, such that price breakout can either be on the up

or downside. Unexpected defaults in the shadow banking sector are a likely negative catalyst

Shanghai Composite Index technical analysis

State of the Chinese Economy Chinese financial market

1500

2000

2500

3000

3500

4000

4500

5000

5500

Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14

Downward trading channel creating medium-term support and

resistance levels

Appears to be a bilateral wedge in which case price breakout can

either be on the up or downside. However, given that there are higher „closing lows‟, the pattern may represent a bearish pennant,

consistent with a likely negative catalyst given strains in the shadow banking sector. Price action likely

to be ‘downside risk’


Major banks in the China are well-capitalised and in a strong position to weather distress in financial

markets, given their low reliance on wholesale debt markets to fund operations. However, as the

market comes to terms with the unsustainable pace of credit growth, P/B will continue to decline

Key points

State of the Chinese Economy Banking sector

(1) Note: Hua Xia Bank has been excluded from the sample due to an abnormally large average debt-to-deposit ratio of 15.3% over approximately 5 years, with its most recent figure 5.4% being materially above the industry average for

China‟s major banks. The average is upwardly skewed by abnormally high levels of debt in 2008 and 2009.

Based on a study of a number of China‟s major authorised depositary institutions including the Agricultural Bank of China, Bank of Communications, Bank of

China, Industrial and Commercial Bank of China and Hua Xia Bank the critical findings are as follows:

• The rate of growth in lending has increased on average 17.9% over approximately 5 years since 2008, with a 5-year compound annual growth rate of 17.6%

• In comparison, the rate of growth in deposits has increased on average 16.1% over approximately 5 years since 2008, with a 5-year compound annual

growth rate of 15.9%

• As a proxy measure of sensitivity to wholesale debt market distress, the average debt-to-deposit ratio in 3Q13 is 3.27%, which is only fractionally higher

than FY12 of 2.6%. Meanwhile, the average debt-to-deposit ratio since 2008 is 2.5%.1 This reveals that, at least among China‟s major banking players,

financial operations are not reliant upon the liquidity of wholesale debt markets. This is a positive for the Chinese banking system as it is less sensitive to negative shocks in the credit market, and in the event that liquidity dries up

• All banks included in the study have strong regulatory capital ratio positions, most importantly core tier 1 and are well -above minimum standards

• As a key risk, while non-performing loan ratios have declined since 2008, the effects on the credit quality of each bank‟s lending portfolio may not yet be

truly compounded in the NPL ratios and this is supported by declining P/B ratios are all banks (<1) which suggests that markets are now pricing in future write-downs on loans in anticipation of an increase in bad debts


Chinese banking system Agricultural Bank of China (ABC)

ABC‟s share price incorporates expectations of greater bad debt provisioning, with growth in loans

outpacing deposits. While the NPL ratio has consistently declined, aggressive growth may have

jeopardised credit quality. The NPL ratio might not reflect this given delays in realising write-downs

Market expectations

P/BV and return on equity Share price performance (rebased to 100) and P/BV

• While the bank‟s share price and ROE has performed positively, P/BV

has consistently declined since 2009

– Despite the upward trend in ROE, the persistent decline in P/BV may

indicate that this trend is unsustainable, rather than ABC being

undervalued

– The value of the bank‟s assets are forecasted to be less than the

current book value of the company

• An analysis of share price performance against P/BV further alludes to

the markets expectations of future write downs

– While the NPL ratio has been decreasing, the bank incurred its first

increase in bad debts in 5 years growing at a rate of 3.06% from 2012 to 3Q13

Growth in customer deposits and loans

15.0%

15.5%

16.0%

16.5%

17.0%

17.5%

18.0%

18.5%

19.0%

19.5%

20.0%

-

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

FY09 FY10 FY11 FY12 3Q13

P/BV

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

2.0x

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0

Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14

44.0%

46.0%

48.0%

50.0%

52.0%

54.0%

56.0%

58.0%

60.0%

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

FY08 FY09 FY10 FY11 FY12 3Q13

In b

illio

ns

Deposits Loans Loan / deposit

5-year CAGR (deposits): 14.12%

5-year CAGR (loans): 17.67%


Chinese banking system Agricultural Bank of China (ABC)

Despite market consensus, ABC is well-capitalised and non-reliant on funding from wholesale debt

markets. Although total debt has increased, it constitutes c. 2.0% of total operational funding, relatively

immaterial when compared to the quantum of deposits

Capital regulatory ratios

Total debt and customer deposits

Lending operations

(1) Note: Includes debt issuances and repo agreements.

8.0%

7.7%

9.8%

9.5%

9.7%

9.4%

1.4%

2.3%

1.8%

2.4%

2.9%

2.7%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%

FY08

FY09

FY10

FY11

FY12

3Q13

Tier 1 Tier 2

-

0.5%

1.0%

1.5%

2.0%

2.5%

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

FY08 FY09 FY10 FY11 FY12 3Q13

In b

illio

ns

Debt Deposits Debt / deposits

-

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

5,000.0

5,500.0

6,000.0

6,500.0

7,000.0

FY08 FY09 FY10 FY11 FY12 3Q13

In b

illio

ns

Loans Bad debts NPL ratio


Chinese banking system Bank of Communications (BoCom)

BoCom‟s declining share price appears to reflect expectations of future bad debt provisioning, that

may be associated with the bank‟s increase in loans. The declining NPL ratio may therefore fails to

reflect the true credit quality at the time of reporting

Market expectations


• The bank‟s share price appears to have been in steady decline since

2010

– The similar decline in P/BV appears to suggest a steady book value

– Decline may therefore be driven by the market‟s perception of BoCom‟s shares as overvalued

• Continuing declines in share price in the face of an apparently decreasing NPL ratio may reflect expectations of future write-downs

– Growth in lending may be masking a slower increase in the dollar value of bad debts

– Rising total debt may also be of influence


P/BV

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

FY08 FY09 FY10 FY11 FY12 FY13

ROE P/BV

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

-

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

100.00%

-

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0

4,000,000.0


Deposits from customers Loans Loan-to-deposit ratio


Chinese banking system Bank of Communications (BoCom)

Rising lending and deposits evidence BoCom‟s expanding operations over the past five years. Debt

represents only a small portion of financing, particularly when compared with customer deposits, and

may thus be sustainable



Lending operations


0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

-

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0



-

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

-

500,000.0

1,000,000.0

1,500,000.0

2,000,000.0

2,500,000.0

3,000,000.0

3,500,000.0

4,000,000.0


in b

illio

ns


9.54%

8.15%

9.37%

9.27%

11.24%

9.76%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%

FY08

FY09

FY10

FY11

FY12

FY13

Core Tier 1


Chinese banking system Bank of China (BOC)

BOC‟s risen share price incorporates increasing bad debt provisioning, with loans steadying in growth

with deposits. Additionally, NPL has declined while the debt issuances of BOC have consistently been

increased

Market expectations


• The Bank‟s share price experienced a drop late 2011 and since then,

has overall been increasing

• ROE has slightly increased while P/BV is recovering from a recent

decline

– The similar patterns of ROE and P/BV may indicate that this

trend is sustainable

– If the rising trend continues, the bank‟s assets may be valued

more than the current book value

• Share price and P/BV have display a similar pattern, which suggests

possible future write downs


56.00%

58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

70.00%

72.00%

74.00%

76.00%

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

FY08 FY09 FY10 FY11 FY12 3Q13

In b

illio

ns


0.80x

1.00x

1.20x

1.40x

1.60x

1.80x

2.00x

2.20x

2.40x

60.0

70.0

80.0

90.0

100.0

110.0

120.0

130.0


12.0%

12.5%

13.0%

13.5%

14.0%

14.5%

15.0%

15.5%

16.0%

16.5%

-

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

1.8x

FY09 FY10 FY11 FY12 3Q13

ROE P/BV


Chinese banking system Bank of China (BOC)

Bank of China is well-capitalised as most of its funding is not sourced from wholesale debt markets,

with steady Tier 1 percentages. Total debt has also been steadily increasing but it is not a material

component of operational funding being around 2.5%.



Lending operations


10.83%

9.09%

10.11%

10.08%

10.54%

9.52%

2.62%

2.07%

2.49%

2.90%

3.09%

2.83%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%

FY08

FY09

FY10

FY11

FY12

3Q13

Tier 1 Tier 2

-

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

5,000.0

5,500.0

6,000.0

6,500.0

7,000.0

FY08 FY09 FY10 FY11 FY12 3Q13

In b

illio

ns


-

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

FY08 FY09 FY10 FY11 FY12 3Q13

In b

illio

ns


Chinese banking system Industrial and Commercial Bank of China (ICBC)

With China‟s slow and fragile economy, the persistent decline in ICBC‟s share price was anticipated,

caused by the rising of bad debts and aggravation of credit conditions. Although ICBC has beaten

analysts‟ forecast regarding its 2014 first quarter profits, ICBC‟s outlook remains uncertain

Market expectations


• Although ICBC‟s share price is gradually increasing, the decline in P/BV

and profit persists since 2009

– Despite increases in net profit, ROE is declining since 2011

– The non-performing loans ratio has increased as well as the level of bad debts since 2012, indicating an aggravation of credit conditions

– More people seek loans from non-financial institutions

– While the EPS has been increasing, the bank is still experiencing

weak profit growth since 2009

– ICBC‟s core capital adequacy ratio remained at 10.57%, compared

to 10.62% in 2012


50.00%

52.00%

54.00%

56.00%

58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

16,000.0


In b

illio

ns


18.0%

19.0%

20.0%

21.0%

22.0%

23.0%

24.0%

-

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

FY09 FY10 FY11 FY12 FY13

ROE P/BV

0.80x

1.00x

1.20x

1.40x

1.60x

1.80x

2.00x

2.20x

2.40x

60.0

70.0

80.0

90.0

100.0

110.0

120.0


Share price P/BV


Chinese banking system Industrial and Commercial Bank of China (ICBC)

Despite ICBC‟s weak profit growth, ICBC is China‟s largest lender by assets is well-capitalised and

remain committed to support China‟s fragile economy.



Lending operations


10.75%

9.90%

9.97%

10.07%

10.62%

10.57%

2.34%

2.46%

2.30%

3.10%

3.04%

2.55%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%

FY08

FY09

FY10

FY11

FY12

FY13

Tier 1 Tier 2

-

0.5%

1.0%

1.5%

2.0%

2.5%

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

5,000.0

5,500.0

6,000.0

6,500.0

7,000.0


In b

illio

ns


-

0.50%

1.00%

1.50%

2.00%

2.50%

-

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

14,000.0

16,000.0


In b

illio

ns



Chinese banking system Hua Xia Bank

Hua Xia‟s growth in loans took a hit in 09-10 which corresponded to a decline in the growth of

deposits. This, alongside large declines in share price performance, reflect the negative market

sentiment behind China‟s banking system that was prevalent in the close of the last decade

Market expectations


• Although Hua Xia‟s ROE has performed strongly from 09-12, P/BV has

consistently declined during this period.

– Similarly, the NPL ratio has declined, although favourably, reflecting

that the bank‟s financial position continues to improve year on year.

– Indeed, Hua Xia‟s net profits have continued to climb through a

steady gain of liquid assets (increasing book value).

• However, predictions of share performance indicate the high risk of

future write-downs.

– The bank also experienced a large drop in debt/deposit ratio as debt

issuances continue to fall to relative lows and growing middle-class

customers seek to invest in the climbing RMB.

-

0.20x

0.40x

0.60x

0.80x

1.00x

1.20x

-

20.0

40.0

60.0

80.0

100.0

120.0

Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14-

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

-

0.2x

0.4x

0.6x

0.8x

1.0x

1.2x

1.4x

1.6x

FY09 FY10 FY11 FY12

P/BV

64.00%

66.00%

68.00%

70.00%

72.00%

74.00%

76.00%

0

200

400

600

800

1,000

1,200


In b

illio

ns



5-year CAGR (deposits): 16.38%

5-year CAGR (loans): 15.17%


Chinese banking system Hua Xia Bank

Hua Xia‟s funding has moved away from debt (which now constitutes a small portion of total

operational funding). In terms of risk management, the bank‟s capital adequacy fluctuations have

primarily reflected the changes in debt/deposit and loan/deposit ratios


Total debt and customer deposits Lending operations

7.46%

6.84%

6.65%

8.72%

8.18%

3.94%

3.36%

3.93%

2.96%

2.67%

0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

FY08

FY09

FY10

FY11

FY12

Tier 1 Tier 2

-

0.2%

0.4%

0.6%

0.8%

1.0%

1.2%

1.4%

1.6%

1.8%

2.0%

0

100

200

300

400

500

600

700

800


In 1

00

millio

ns


-

5.00%

10.00%

15.00%

20.00%

25.00%

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0


In b

illio

ns



chinese banking system

Economy & Finance