Jiangnan Bank's IPO Faces Hurdles: Equity Auctions, Debt Market Violations

Experts have indicated that the controllable risk of commercial banks is a bottom line that cannot be breached.

Jiangnan Rural Commercial Bank should diligently strengthen its internal capabilities in aspects such as equity structure, corporate governance, profitability, and risk management.

On September 18th, a reporter from the International Finance News noticed that another equity stake of Jiangnan Rural Commercial Bank was listed on the Alibaba Asset Auction platform.

This equity target of 50,000 shares, with a market value of 135,000 yuan, has already been viewed 1,849 times, has 7 people registered, and has received two bids, with the current auction price reaching 111,000 yuan.

In addition to this ongoing auction, Jiangnan Rural Commercial Bank also has an equity auction of 46,006 shares starting on September 19th.

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Apart from the frequent auctions of equity and the stagnation of the listing process, Jiangnan Rural Commercial Bank has also faced a decline in net interest income in recent years, with investment income and other non-interest income seemingly becoming the "main force" driving the growth of operating income.

An expert said in an interview with a reporter that the controllable risk of commercial banks is a bottom line that cannot be breached, and Jiangnan Rural Commercial Bank should diligently strengthen its internal capabilities in aspects such as equity structure, corporate governance, profitability, and risk management.

In fact, the equity of this rural commercial bank, with assets over 50 billion yuan, has become a "regular" on the auction platform.

According to incomplete statistics from the Alibaba Auction platform, there have been 34 auctions involving the equity of Jiangnan Rural Commercial Bank this year, including at least 26 listed targets and 1.95 million shares, most of which have been successfully traded.

The holders of the auctioned equity include several legal entities such as Changzhou Engineering Plastics Co., Ltd. and Jiangsu Yanghu Cable Co., Ltd.

Among them, the largest target was held by a natural person with 151,482 shares, which was successfully traded at a price of 430,000 yuan.

As the rural commercial bank with the largest asset scale in Jiangsu Province, Jiangnan Rural Commercial Bank has been seeking to go public in recent years.

Since proposing the listing plan in 2018, it is still in the listing guidance period.

One of the obstacles is the bank's dispersed equity and numerous shareholders.

As of the end of June 2024, the total share capital of Jiangnan Rural Commercial Bank was 10.115 billion shares, with a total of 7,177 shareholders.

Among them, there were 843 legal person shareholders and 6,334 natural person shareholders, holding shares accounting for 75.71% and 24.29% of the total share capital, respectively.

At the same time, the bank has no controlling shareholder or actual controller.

According to the semi-annual report, only two of the top ten legal person shareholders have a shareholding ratio exceeding 5%: Changzhou Investment Group Co., Ltd. and Jiangsu Jinfeng Cement Group Co., Ltd. hold 1.012 billion shares and 744 million shares, accounting for 9.99% and 7.36% of the total share capital, respectively.

The combined shareholding ratio of the top ten legal person shareholders is only 34.42%, and the combined shareholding ratio of the top ten natural person shareholders is only 1.19%, with the first and third largest natural person shareholders having pledged shares.

Public information shows that Jiangnan Rural Commercial Bank was established in 2009, initiated by the merger of five original rural small and medium financial institutions in Changzhou, and is the first municipal-level joint-stock rural commercial bank in the country.

Since deciding to start the listing work in 2018, there has been no substantial progress.

The dispersed equity and frequent auctions may have affected the bank's IPO process to a certain extent.

"It is difficult to say whether dispersed equity is good or bad, and it needs to be analyzed according to the specific situation," said an analyst.

"Generally speaking, dispersed equity may lead to a lack of centralized decision-making power, making it difficult to quickly reach a consensus in business decisions and market development, and it may have a negative impact on policy implementation and management efficiency.

However, on the positive side, it helps to form a democratic decision-making atmosphere.

It mainly depends on the specific impact of different equity structures on business operations, management efficiency, and risk control."

Recently, the China Interbank Market Trading Association issued a notice, pointing out that four rural commercial banks in Jiangsu Province are suspected of manipulating market prices and interest transfer in the secondary market of government bonds, and said that it will start self-discipline investigations on these four institutions according to the "Self-disciplinary Punishment Rules of the Interbank Bond Market."

Jiangnan Rural Commercial Bank is one of them.

The reporter sorted out the performance of the past three years and found that the revenue of Jiangnan Rural Commercial Bank is under pressure, and the growth rate is slowing down year by year.

According to the semi-annual report data, from June 2022 to June 2024, the bank's operating income increased from 6.443 billion yuan to 7.267 billion yuan, and the year-on-year growth rate slowed down from 12.86% to 4.93%.

In the annual report data, from 2021 to 2023, the operating income of Jiangnan Rural Commercial Bank only increased by about 887 million yuan, and the year-on-year growth rate slowed down from 7.71% to 0.92%.

Among them, the increase from 2022 to 2023 was only 116 million yuan.

It is worth noting that upon examining the operating income structure disclosed in the semi-annual reports of the past three years, the net interest income of Jiangnan Rural Commercial Bank is decreasing.

From the mid-term of 2022 to the mid-term of 2024, the bank achieved net interest income of about 4.946 billion yuan, 4.845 billion yuan, and 4.819 billion yuan, respectively.

The reason for the decline is the year-on-year increase in interest expenses.

At the same time, investment income and other non-interest income have increased significantly, becoming the "main force" in increasing the operating income of Jiangnan Rural Commercial Bank.

Taking the semi-annual report data of 2024 as an example, the bank's net interest income decreased by about 26 million yuan year-on-year, while investment income increased from 1.098 billion yuan in the same period of the previous year to 1.405 billion yuan, an increase of about 307 million yuan.

United Credit also pointed out in the "2024 Tracking Rating Report" that from the perspective of profitability, in 2023, thanks to the continuous growth of the scale of interest-generating assets, the operating income of Jiangnan Rural Commercial Bank increased, but the growth mainly relied on non-interest income, and the income structure has changed to some extent.

In addition to the pressure on performance, Jiangnan Rural Commercial Bank also has a significant demand for interbank certificates of deposit.

According to the statistical data of Tonghuashun iFind, as of September 18th, the bank planned to issue about 43.99 billion yuan of interbank certificates of deposit within the year, and the actual total amount issued has reached 42.85 billion yuan.

Li Nan, an associate professor at Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University, pointed out that Jiangnan Rural Commercial Bank is a typical small and medium-sized bank.

Its reasonable business model should be to do a good job in the main business of deposit-taking and lending, to play its information advantage in the region, to explore enterprises or individuals with real growth potential, and to provide them with high-quality financial services.

While helping them grow, the bank also earns profits.

"The situation of the bank's net interest income falling and non-interest income soaring is not reasonable," Li Nan said bluntly, "The business that can obtain higher non-interest income in a short period of time must be a high-risk business.

However, the controllable risk of commercial banks is its bottom line that cannot be breached, because its funds come from deposits, and commercial banks must ensure the safety of deposits.

Compared with state-owned large banks, risk management is the short board of small and medium-sized banks.

If it can stick to the main business with relatively low risk, the risk management ability of Jiangnan Rural Commercial Bank is still suitable, but for high-risk non-interest business, its risk management ability is far from enough."

At the end of 2023, there was a change in the senior management of Jiangnan Rural Commercial Bank, and Zhuang Guangtong, the former chairman of Changshu Bank, took over as the chairman of Jiangnan Rural Commercial Bank.

Can this experienced bank "veteran" lead the bank to successfully go public?

Li Nan believes that small and medium-sized banks should think about the significance of going public.

"The characteristics of an excellent small and medium-sized bank should be 'small and beautiful'.

Although the income growth is not high, the income is stable, and the capital is sufficient.

If a bank hopes to supplement its capital through listing, it means that the bank's operation has problems."

Li Nan pointed out, "According to the '1+N' financial supervision system introduced this year, necessary requirements have been put forward for the corporate governance of listed companies and companies that intend to go public.

If Jiangnan Rural Commercial Bank cannot diligently strengthen its internal capabilities in aspects such as equity structure, corporate governance, profitability, and risk management, the road to listing will be very difficult."