Asset worries see Minsheng Bank take a tumble

Shares of the country's first privately-owned bank tumbled to the lowest in more than 10 months, before slightly recovering in the afternoon to close down 3.67 per cent at HK$5.78 in a weaker overall market.

The dip came after JPMorgan's analysts cut the stock's rating to neutral from overweight, while Credit Suisse downgraded the bank to underperform.

A bank conference call with investors yesterday did little to soothe, as bad loans continue to rise and the net interest margin, which measures the spread between funding costs and lending income, continues to narrow, said analysts.

"In general, I think you are seeing a sell-off [of] the smaller banks on concerns of overdue loans and non-performing loans and net interest margin compression," said Michael Werner, a senior analyst at Sanford C. Bernstein.

Minsheng 's non-performing loan ratio remained lower than larger banks, but its asset quality deterioration was sharp, analysts said.

Non-performing loans at the bank grew 19 per cent to 9 billion yuan (HK$11 billion), and loans overdue for less than three months but not yet qualified as bad, surged 78 per cent.

Another regulatory change recently will also affect earnings at the bank.

The official Shanghai Securities Journal said the China Banking Regulatory Commission approved draft rules at the end of last month requiring banks to take certain off-balance-sheet trade refinancing items onto the balance sheet.

Minsheng's projected earnings could drop 5 per cent this year due to the regulation. Its core capital, which essentially consists of equity, could drop by 0.3 percentage points to 8.1 per cent, when measured against risk-weighted assets, according to Stanley Li, an analyst at Mirae Asset Securities.