Bank of Chongqing, the first of several city commercial lenders expected to tap Hong Kong's listing market, plans an increasing focus on lending to small and micro-firms in affluent urban areas as part of a strategy to differentiate itself from its rivals.
The bank yesterday laid out a bold expansion agenda that aims to build a portfolio of small and micro-enterprise loans equivalent to about half its entire lending by the end of 2015, up from 31.5 per cent in June.
"As a pioneer in small and micro-enterprise financing since 2007, the bank plans to dedicate our lending efforts to the region's small and medium-sized enterprises on the back of the rapid growth in the western region," Bank of Chongqing president Ran Hailing told a media briefing in Hong Kong yesterday.
Since December 2010 the proportion of loans extended to small and micro-enterprises has surged more than fourfold from 6.33 billion yuan (HK$8 billion) to 26.78 billion yuan as at the end of June, or from 11.9 per cent of total loans to 31.5 per cent.
Asked about pressure on the bank's net interest income in the event of ongoing interest rate liberalisation, chief financial officer Ni Yuemin said the banking landscape was a "double-edged sword" which provided opportunities to develop innovative financing solutions to address sharply rising demand as well as operating challenges.
The bank's net interest margin, a key measure of lending profitability, has trended downwards from 2.92 per cent in 2011 to 2.79 in June. Its non-performing loan ratio rose moderately from 35 basis points to 38 basis points for the same period, which it attributed to the country's slowing economic output.
Chairman Gan Weimin reaffirmed the bank's commitment to growing its business among city residents, even though it had fewer retail branches than its rival Chongqing Rural Commercial Bank, because income growth in the cities would exceed that of rural areas.
Gan declined to comment on whether the bank's share issue would be finally priced at the official requirement level of one times book value, after the shares were offered at a price of between HK$5.60 and HK$6.50 apiece, which translates into a valuation of between 0.88 and 0.99 times the expected book value this year.
The lender will start to take share orders from local retail investors today after the institutional tranche was fully covered with three cornerstone investors who have pledged a combined US$100 million worth of shares, or about 17 per cent of the sale.
The shares will be priced on October 30 and are scheduled to begin trading on November 6.
Two of the investors are non-institutional mainland firms that subscribed US$90 million in total, while National Bank of Canada, the country's sixth-largest lender, has agreed to make a $10 million investment.
If everything goes smoothly, Bank of Chongqing will be the first Chinese lender to go public since the 2010 listing of Chongqing Rural Commercial Bank.