Update | Nanyang Commercial Bank’s HK$68 billion asking price a bid for state buyers
Bank of China (Hong Kong) opened the bidding for Nanyang Commercial Bank (NCB) at HK$68 billion on Wednesday but the higher-than-expected asking price, coupled with deteriorating asset quality on the mainland, could keep all but state-backed buyers away, analysts said.
BOC Hong Kong said in a notice at the Beijing Financial Assets Exchange that it would sell 100 per cent of its wholly owned subsidiary, which has 40 branches in Hong Kong and 42 branches and sub-branches on the mainland.
BOC Hong Kong will accept bids on the bank, which also owns a locally incorporated subsidiary on the mainland, until August 25.
Considering the extent of bad loans at NCB, this seems a bit rich
If NCB sold for HK$68 billion, it would be the largest bank deal in Hong Kong and tower over buyouts in recent years, such as OCBC’s HK$38.4 billion purchase of Wing Hang Bank in July last year, which was the biggest bank deal in more than 10 years.
About half of Nanyang’s loans last year were booked on the mainland, raising questions over its asset quality as the mainland banking sector continues to experience a strong uptick in non-performing loans.
At the end of June last year, NCB had a non-performing loan ratio of 0.73 per cent, up 39 basis points in six months, according to BOC Hong Kong.
“Considering the extent of bad loans at NCB, this [asking price] seems a bit rich,” Mizuho Securities Asia banking analyst Jim Antos said. “However as this deal will most likely involve only mainland parties, this expensive valuation might very well be reached, which would be very positive for BOC Hong Kong shares.”
The announcement of the asking price on Wednesday drove BOC Hong Kong shares up by 2.6 per cent to HK$31.40.