Deutsche Bank
Markets Research
Asia
China
Banking / Finance
Banks
Industry
Chinese banks
Date
1 May 2017
Industry Update
Financial deleveraging impact Series 3
¨C Mounting capital pressure
Capital raising wave on tighter regulations; staying cautious on smaller banks
________________________________________________________________________________________________________________
Deutsche Bank AG/Hong Kong
Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should
be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should
consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST
CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 083/04/2017.
Hans Fan, CFA
Research Analyst
(+852 )2203 6353
hans.fan@db
Jacky Zuo
Research Associate
(+852 )2203 6255
jacky.zuo@db
Stephen Andrews, CFA
Research Analyst
(+852 ) - 2203 6191
stephen-a.andrews@db
Top picks
ICBC (1398.HK),HKD5.08 Buy
China Merchants Bank
(3968.HK),HKD20.20
Buy
Source: Deutsche Bank
Companies Featured
ICBC (1398.HK),HKD5.08 Buy
China Construction Bank
(0939.HK),HKD6.32
Buy
Agri. Bank of China (1288.HK),HKD3.59 Hold
Bank of China (3988.HK),HKD3.77 Buy
Bank of Communications
(3328.HK),HKD5.99
Hold
China Merchants Bank
(3968.HK),HKD20.20
Buy
China CITIC Bank (0998.HK),HKD4.93 Sell
China Minsheng Bank (1988.HK),HKD7.66 Sell
CEB (6818.HK),HKD3.65 Sell
Chongqing Rural Bank (3618.HK),HKD5.35 Hold
Huishang Bank (3698.HK),HKD3.68 Sell
Bank of Chongqing (1963.HK),HKD6.49 Sell
Shanghai Pudong Bank
(600000.SS),CNY15.21
Sell
Industrial Bank (601166.SS),CNY15.46 Sell
Ping An Bank (000001.SZ),CNY8.99 Hold
Bank of Beijing (601169.SS),CNY9.00 Buy
Bank of Nanjing (601009.SS),CNY10.56 Sell
Bank of Ningbo (002142.SZ),CNY17.61 Sell
Source: Deutsche Bank
We value Chinese banks using a three-
stage Gordon Growth Model (PV= (ROE-
g)/(COE-g)), with target prices based on
2017E book values. Downside risks
include property price protection and
tighter liquidity. Upside risks include
removal or softening of GDP targeting
and more SOE defaults.
Facing tighter regulation of shadow banking, we expect rising capital pressure
on smaller banks. Indeed, we have noted that 20 listed banks have announced
capital raising plans worth Rmb517bn (Figure 15), among which Rmb66bn will
be issued via private placements. In a bear case, we estimate that listed banks
would have to raise CET-1 capital of Rmb343bn, or 18% of their market cap. As
trading below book, listed smaller banks would probably have to slow asset
growth, shift to lower-return assets and cut dividends in the near term. We
remain cautious on smaller banks and prefer t
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