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At present, Yantai Rural Commercial Bank is indeed facing a lot of growth pressure, but it is also taking a series of multi-effective measures to improve various problems as soon as possible.

Source: Daily Financial Report Zhang Heng

Produced by: Institutional Investors

There is no doubt that companies will almost inevitably encounter low periods in their development process. This is a universal challenge, but in this process, the company's response strategy to adversity has essentially become a touchstone for measuring its growth potential and resilience.

Recently, Yantai Rural Commercial Bank announced its semi-annual report card for 2024. Its operating profit in the first half of the year was 172 million yuan, a year-on-year increase of 20.28%; its net profit was 171 million yuan, a year-on-year increase of 20.42%.

The reasons why its net profit increased more than its operating income year-on-year are mainly related to two aspects: first, the bank's credit impairment losses in the first half of the year, especially in the second quarter, were significantly reduced; second, the bank cut business and administrative expenses.

Previously, the company's net profit had been declining for many years, from more than 300 million yuan seven years ago to less than 100 million yuan in 2023. The profit growth in the semi-annual report has, to a certain extent, alleviated the outside world's doubts about it.

The growth rate of asset and liability scale, deposit and loan business holds up "half the sky"

Yantai Rural Commercial Bank is a newly established rural commercial bank, Yantai Rural Commercial Bank Co., Ltd., based on the merger of five rural credit cooperatives in Zhifu District, Laishan District, Fushan District, Muping District and Yantai Economic and Technological Development Zone of Yantai City.

According to the "2024 Second Quarter Information Disclosure Report" released by Yantai Rural Commercial Bank, the bank's total assets reached 66.125 billion yuan in the first half of this year, an increase of 5.32% from the beginning of the year.

Among them, the bank's loan and advance business, which is the "main force" of assets, issued a total amount of 37.031 billion yuan in the first half of this year, an increase of 4.42% from the end of 2023, accounting for 56% of total assets.

The financial investment business, which ranks second in contribution to asset growth and currently accounts for nearly 28%, has also seen a slight increase compared to the same period in 2023, reaching 18.26 billion yuan, an increase of about 1.5% year-on-year.

However, if we look at it separately, the performance of this business in the first half of this year was somewhat differentiated, with its trading financial assets decreasing by 12.07% year-on-year to 809 million yuan; bond investments, which accounted for the largest proportion, also declined, shrinking by 6.68% from 11.347 billion yuan in the same period of 2023 to 10.589 billion yuan; only other bond investments increased, reaching 6.682 billion yuan, a year-on-year increase of 20.53%.

It is reported that in terms of financial investment, for the sake of security and tax exemption effects, Yantai Rural Commercial Bank mainly invests in interest-bearing bonds, accounting for about 95% of the total investment, and the overall investment style is relatively stable.

Looking at the liabilities side, as of the end of June this year, the total liabilities of Yantai Rural Commercial Bank were 62.014 billion yuan, an increase of 5.29% from the beginning of the year. It can be seen that the growth rate of liabilities is equivalent to the growth rate of assets. Among them, deposits absorbed were 59.322 billion yuan, an increase of 5.73% from 56.107 billion yuan at the end of last year, accounting for 95.66% of the total liabilities.

It can be clearly seen that the funds of Yantai Rural Commercial Bank mainly come from customer deposits. In recent years, the bank's total deposits have accounted for more than 90% of total financing.

At the same time, since the bank has been operating in the local area for a long time and has a wide coverage of branches, it has geographical advantages in attracting personal deposits. Personal deposits account for nearly 80% of total deposits, but corporate deposits account for a small proportion and are mainly demand deposits, with relatively large volatility at different points in time. Under the continued influence of the overall environment such as the downward economic situation and the cooling of the real estate market, the scale of corporate deposits of Yantai Rural Commercial Bank may decline.

It is worth noting that in the 2024 follow-up rating report issued by China Chengxin International on July 30 to Yantai Rural Commercial Bank, it was pointed out that the bank's deposit stability and investment asset liquidity are good, but loan recovery difficulties and a high proportion of loans under watch and extended periods increase the mismatch between assets and liabilities, and the pressure on liquidity risk management is relatively high.

Why did the first half of the year’s performance show “increased profits but not increased revenues”?

After analyzing the specific situation of Yantai Rural Commercial Bank's assets in the first half of the year, we will focus on the performance of the bank, which is of great concern to the market. According to the semi-annual report, it can be summarized as "increased profits but not increased revenues".

As of the end of June 2024, Yantai Rural Commercial Bank achieved operating income of 431 million yuan, a year-on-year decrease of 6.3%; and achieved net profit of 171 million yuan, a year-on-year increase of 20.42%.

Looking at the revenue structure, most of the bank's revenue is contributed by net interest income, but this indicator suffered a serious "Waterloo" in the first half of this year, with a net profit of only 393 million yuan, a sharp reduction of 18.13% compared with 480 million yuan in the same period last year, and its contribution to revenue fell to 91.18%.

In addition, the bank's non-interest income accounted for a low proportion, and also showed a relatively differentiated trend in the first half of this year. Among them, the net income from fees and commissions suffered a loss of about -0.09 billion yuan. Although the loss was narrowed compared with -0.2 billion yuan last year, it also showed that Yantai Rural Commercial Bank may not have a good layout in the current business of non-interest income, which is considered to be the main growth pole of banks in the future, and even in the wealth management business, which is regarded as the "biggest outlet" in my country's financial field, so that it has now shown a large decline.

But it is worth mentioning that the bank's investment income in the first half of this year was relatively strong, reaching 40 million yuan, a significant increase of 185.71% year-on-year.

In the case of a relatively differentiated revenue side, the net profit of Yantai Rural Commercial Bank in the first half of this year was able to reach 171 million yuan, an increase of 29 million yuan year-on-year, which is commendable and particularly difficult. After analyzing the bank's financial report, we believe that there are two main reasons for this phenomenon.

First, the relevant impairment losses were significantly under-provisioned during the reporting period, which indirectly increased net profit. Data showed that as of the end of June, Yantai Rural Commercial Bank had provisioned for credit impairment losses of 52 million yuan, which was 51 million yuan less than the 103 million yuan in the same period of 2023.

Second, it benefited from cost reduction and efficiency improvement. This is also reflected in its semi-annual report. Data shows that in the first half of this year, Yantai Rural Commercial Bank's business and management expenses were reduced by 39 million yuan to 163 million yuan compared with the same period last year, a year-on-year decrease of 19.31%, reflecting that its cost control is good and the scale effect has been improved to a certain extent.

Capital adequacy levels face downward pressure and asset quality needs to be improved

Through the information report for the first half of 2024 disclosed this time, we also found that the capital adequacy level of Yantai Rural Commercial Bank is facing certain downward pressure.

As of the end of June 2024, the bank's capital adequacy ratio was 10.32%, and its Tier 1 capital adequacy ratio and core Tier 1 capital adequacy ratio were 9.67% and 9.42% respectively. Among them, its capital adequacy ratio is already lower than the regulatory red line requirement of 10.5%. Although the other two indicators meet the regulatory requirements, the difference between them and the regulatory red line is only 1.17 and 1.92 percentage points respectively.

Looking at the long-term trend, the bank's capital adequacy level has long been under pressure and is on the decline. At the end of 2013, the bank's capital adequacy ratio, tier-one capital adequacy ratio and core tier-one capital adequacy ratio were 15.68%, 14.64% and 14.64% respectively. After four consecutive years of decline, the three indicators were 11.84%, 10.71% and 10.71% respectively at the end of 2017. Although there have been fluctuations since then, the overall trend is in a downward channel.

Especially by 2023, due to the reduction in retained earnings and the large amount of non-performing loan write-offs that continued to consume provisions, resulting in an increase in the loan loss provision gap, and the continued growth in the scale of debt-collateralized assets that have not been disposed of for more than two years, the bank's three indicators dropped to 9.22%, 8.54% and 8.33% respectively.

In fact, the capital replenishment pressure faced by Yantai Rural Commercial Bank is not unrelated to the weakening of its own asset quality.

The China Chengxin International Ratings report pointed out that considering the great downward pressure on Yantai Rural Commercial Bank's profitability and asset quality in the future, the disposal of debt-collateralized assets is relatively difficult. At the same time, the capital portion of the secondary capital bonds issued by the bank will continue to decrease from April 2024. The bank will face great capital replenishment pressure in the future.

Although the information report did not disclose the specific indicators of Yantai Rural Commercial Bank's asset quality, we can see from its previously disclosed annual report that the bank's asset quality is not optimistic. Data shows that from 2021 to 2023, the bank's non-performing loan balances were 1.263 billion yuan, 1.576 billion yuan, and 1.54 billion yuan respectively; the non-performing loan ratios in the same period were 3.84%, 4.48%, and 4.19% respectively.

The equity structure is dispersed and unstable, and pledge and freezing issues are "overwhelming"

The equity structure issue has a great impact on the future stable development of the bank. Through the equity information, it is not difficult to find that Yantai Rural Commercial Bank not only has problems such as a large number of shareholders and a dispersed equity structure, but also the equity held by shareholders has been frozen and pledged, and the qualifications of shareholders are not satisfactory, which adds certain pressure to the bank's future development.

The 2023 annual report shows that as of December 31, 2023, Yantai Rural Commercial Bank has a total share capital of 2.5 billion shares and 3,504 shareholders. Among them: 2,418 general natural person shareholders, with a share capital of 732.8 million shares, accounting for 29.31%; 963 employee natural person shareholders, with a share capital of 208.3 million shares, accounting for 8.33% of the paid-in capital; 123 legal person shareholders, with a share capital of 1.5589 billion shares, accounting for 62.36%.

Looking further, the bank's shareholders with a shareholding ratio of more than 5% are: Qingdao Balong Real Estate Development Co., Ltd. holds 150 million shares (6% shareholding), Yantai Weicheng Food Co., Ltd. holds 135 million shares (5.4% shareholding), and Shandong Longkou Rural Commercial Bank Co., Ltd. holds 130 million shares (5.2% shareholding).

It can be seen that Yantai Rural Commercial Bank still has the problem of having no controlling shareholder and no actual controller, or perhaps due to the unstable equity structure, Yantai Rural Commercial Bank still has the problem of large-scale equity freezing.

According to the Qichacha platform, there are 49 pieces of information on equity freezes in Yantai Rural Commercial Bank, among which the largest shareholder, Qingdao Balong Real Estate Development Co., Ltd., whose equity holdings amounted to 150 million yuan, and the fourth largest shareholder, Balong International Construction Group Co., Ltd., whose equity holdings amounted to 100 million yuan, have been frozen by the courts for multiple times.

In fact, not only were their shares frozen, but the business conditions of these two major shareholders were not optimistic, and they were also facing many judicial cases and contract disputes. Public information shows that they were involved in many judicial freezing cases and contract disputes, and their identities were listed as dishonest debtors and restricted from high consumption.

In addition, according to the National Enterprise Credit Information Publicity System, the bank's 30 shareholders pledged a total of 219 million shares to Yantai Dikai Trading Co., Ltd., 9 shareholders pledged a total of 94.95 million shares to Yantai Runfu Financing Guarantee Co., Ltd., and some shares were pledged to other companies in Yantai.