[ET Net News Agency, 3 March 2017] Deutsche Bank downgraded China Minsheng Bank
(MSB)(01988) to "sell" from "hold" on shadow banking risks and reliance on wholesale
funding, and lowered its price target to HK$7.31 from HK$7.91.
The research house said Chinese banks have rallied 33% in the past 12 months, on higher
rates, industrial reflation and fund inflows. With implied NPL ratio falling by 1ppt yoy
to 6%, current multiples should have largely priced in stronger nominal GDP growth and
corporate profitability.
However, the market has overlooked the growing structural issues, i.e. rapidly growing
system leverage and weakening of banking system funding. DB expects slower credit growth
and intensified financial deleveraging in 2017, which may represent headwinds.
It expects the escalating financial deleveraging efforts to weigh valuation of MSB while
benefit ICBC (01398), due to different balance sheet structure and risk profile. More
specifically, higher market rates would benefit ICBC as interbank net lender, but it would
compress NIM for MSB who is reliant on wholesale funding (30-35% of liabilities). Tighter
shadow banking regulations would impose capital and earnings risks for MSB due to higher
shadow banking exposure (20-25% of assets). (KL)