China Minsheng Bank denies reports of a 4% NPL ratio at its Shanghai branch

NPL ratio is only below 1%.

Minsheng Bank held an ad hoc conference call after the market close, partly in response to its recent volatile share price and partly to update the market on recent developments.

Barclays summarised the key points on Minsheng’s operations, as presented by management, as follows: 1) Minsheng’s operations, including loan & deposit growth and liquidity, have been normal in 2Q13; 2) effective SME loan demand is weakening, triggering pressure on credit quality;

3) asset quality is under control (NPL amount at end-May was largely flat from year-start level); 4) post-event NIS in June is uncertain, but NIS in April & May was largely flat from the 1Q13 level;

5) the bank is still studying its 2H interbank business strategy; and 6) non-standard credit assets (NSCA) as a percentage of WMPs will fall within 35% when they naturally mature by 20 July.

Here's more from Barclays:

Asset quality stable so far, but with increasing pressure on SME loans

The bank’s NPL amount at end-May remained at a stable level compared with that at year-start. Minsheng’s outstanding loans to steel traders have been reduced, with NPLs remaining at a reasonable level, and it has not been involved much in the recent steel trading problems in Jiangsu province.

Small and medium-sized enterprise (SMEs) loan quality pressure is believed to be on the rise, given falling effective SME loan demand - especially in Yangtze river delta, Jiangsu, Fujian and Shandong. The NPL ratio of the bank’s SME loans is higher than the bank’s overall NPL level, but in general under control.

On the conference call management denied earlier reports of a 4% NPL ratio level at its Shanghai branch, and said that NPLs at Minsheng’s Shanghai branch is around RMB 0.8bn, and the NPL ratio is below 1%.

Recent interbank funding cost remain mysterious

Bank management did not disclose its recent average interbank borrowing cost, but they said it is in line with average market rates. The bank is still studying the 2H interbank business strategy. Trust Beneficiary Rights (TBR) as % of reverse repo assets is less than 5%. Minsheng will continue to reduce its discounted bill business.

Mixed drivers for NIS

Net interest spread (NIS) in April and May was stable from 1Q13 level, while post-event NIS in June is hard to tell at this point. The loan pricing power for SMEs and MSEs is currently stable. Going forward, Minsheng believes banks’ loan pricing power will go up in 2H (as will funding costs), amid a tight liquidity situation.

NSCA portion of WMPs to comply with regulation soon

According to management, the NSCA amount that exceeds the regulatory ceiling is currently RMB12bn (down from RMB 20-30bn at end-1Q13), all of which will mature by 20 July 2013. And the NSCA portion as a percentage of the bank's total WMP outstanding balance will fall below 35% by then (complying with CBRC’s #8 document).

Future business focuses

Minsheng has gone through some business structure adjustment and plans to make enhancements in the following business areas: 1) MSE business, 2) regionally specialised supply chain and industry chains, 3) emerging industries, including education, healthcare and the environmental protection industry.