The frequent sale of assets worth billions, small and medium-sized banks accelerate "tail-cutting for survival"

After entering the fourth quarter, more and more small and medium-sized banks have begun to accelerate the sale of their risk assets.

On October 10, CBHB announced plans to publicly list and transfer 69.833 billion yuan of debt assets in batches through a property rights exchange.

In this transfer of debt by CBHB, there are principal amounts of 49.937 billion yuan and interest penalties of 20 billion yuan, with a preliminary minimum price of 48.883 billion yuan, equivalent to a 30% discount on the total debt.

According to incomplete statistics, within a year, CBHB has transferred debt assets of 5.667 billion yuan and 28.965 billion yuan for 3.967 billion yuan and 20.724 billion yuan respectively; combined with the planned sale of 69.833 billion yuan in debt, CBHB has cumulatively disposed of problematic assets exceeding 100 billion yuan in three instances.

Around the same time, Guangzhou Rural Commercial Bank announced it would transfer 18.928 billion yuan of credit assets through a property rights exchange; among these, there are principal amounts of 14.978 billion yuan and interest penalties of 3.95 billion yuan, with a preliminary bottom price of 12.2 billion yuan, equivalent to a 35% discount on the total debt.

Xinfeng noted that the bank had also sold 14.592 billion yuan of debt at a 30% discount at the end of last year, and since 2023, the total amount of credit assets sold has exceeded 45 billion yuan.

The frequent sale of risk assets exposes the ongoing asset quality pressure faced by some small and medium-sized banks.

As of the end of the second quarter, CBHB's non-performing loan ratio was 1.81%, which is 0.59 percentage points higher than the overall value of joint-stock banks, placing it at a poor level among peers, with a capital adequacy ratio of 11.24% ranking last among listed joint-stock banks.

The debt package being transferred includes 174 debtors, more than half of which are long-term assets with an aging period of over 5 years;

The bank admitted that the aforementioned assets have high capital occupation and poor liquidity, and a one-time discounted clearance is expected to improve asset quality, save on risk asset occupation, and increase capital adequacy ratio, further enhancing comprehensive competitiveness.

Based on data projected for the end of 2024, a successful transaction of the debt could bring a positive financial impact of approximately 573 million yuan to CBHB.

Guangzhou Rural Commercial Bank's situation is similar to that of CBHB.

As of the end of the second quarter, Guangzhou Rural Commercial Bank's non-performing loan ratio was 1.98%, significantly better than the overall level of rural commercial banks by 0.79 percentage points, but still in the mid-to-lower tier among H-share listed banks.

In terms of industry categories, the bank's current debt transfer mainly involves leasing and business services, real estate, and wholesale and retail, accounting for 38.78%, 20.46%, and 16.27% respectively;

If Guangzhou Rural Commercial Bank successfully sells its assets, the funds obtained are intended for general operations, as it believes this move will effectively reduce the non-performing loan ratio and provision amounts, and improve efficiency levels.

Under operational pressure, actively "stem the bleeding" by quickly shedding risk assets also reflects the attitude of small and medium-sized banks transitioning from passive acceptance to active management in adversity.

On one hand, while discounted sales may erode current profits, they can recover cash, improve liquidity, create space for new business, and avoid ongoing losses from risk assets;

After all, in 2023-2024, the pre-tax net losses caused by the assets sold by CBHB and Guangzhou Rural Commercial Bank reached 238 million yuan and 1.569 billion yuan respectively On the other hand, risk assets can also be removed from the balance sheet to reduce capital consumption caused by the risk-weighted assets, thereby improving the capital adequacy ratio.

However, in the long run, whether small and medium-sized banks represented by CBHB and Guangzhou Rural Commercial Bank can achieve long-term sustainable development still depends on their ability to seize the funds and time gained during the risk mitigation process.

There is still a long way to go from "stanching the bleeding" to "blood production."