2014 top 10 financial industry trends in china
TRANSCRIPT
Webinar: A look at the Top-10 China Financial Industry Trends for 2014
January 23rd, 2014 - 17:00 – 17:45 Beijing Standard Time
The webinar will start in a few minutes.
For more information about the topics covered in this webinar or
Kapronasia, please visit www.kapronasia.com or send us an email: [email protected]. Twitter: @chinafintech
A look at the Top-10 China Financial Industry Trends for 2014 • Top 10 Capital Markets Trends in Brief • Top 10 Banking Trends in brief Prepared by Victor Fan, Fiona Zhao Moderated by Paul Robinson Presented by Zennon Kapron January 23rd, 2014
Top-10 China Capital Market Trends for 2014
1. Asset management industry moving towards “common” retail wealth management industry
2. Chinese domestic a-share market faces more uncertainty in 2014 3. Money market products will take more share from bank deposits
and put pressure on banks 4. ChiNext market will continue to grow strongly 5. Emergence of new financial derivatives including stock options 6. Expansion of the Over the Counter Bulletin Board (OTCBB) 7. Restart of IPOs, challenges and opportunities 8. Deepening Internet Finance influence on the Chinese capital
market 9. Increasing number of hedge funds entering China; development of
local hedge fund industry – Shanghai Hongkou Hedge Fund Park 10. Ambiguous future of algorithmic trading in china
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Top-10 China Capital Market Trends for 2014 Trend Number 1: Asset Management Industry Trend Number 4: ChiNext Market Trend Number 7: Restart of IPOs
Top-10 Capital Markets Trends – Asset Management
• Asset management industry moving towards “common” retail wealth management industry
• The combination of Internet finance and finance industry has changed the landscape of asset management industry
• 2014 => ‘generally available’ wealth management products will keep being a competitive focus for AM firms
• Drivers: 1. Large population and large total wealth management demand 2. Undeveloped wealth management products and services 3. Less knowledgeable investors 4. Immature financial system in China
• Favorable products: low threshold, low risk, stable and relatively high return
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Top-10 Capital Markets Trends – Asset Management
AUM growth of Yu’ebao product => largest fund product in the market currently => Tianhong Asset Management now second largest AM in China.
Source: Tianhong Asset Management, 2014
6.6
55.65
100
185.3
0
20
40
60
80
100
120
140
160
180
200
June 30, 2013 Sep 9, 2013 Nov 14, 2013 Dec 31, 2013
AUM of Yu'ebao managed by Tianhong Fund (CNYbn)
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Top-10 China Capital Market Trends for 2014 Trend Number 1: Asset Management Industry Trend Number 4: ChiNext Market Trend Number 7: Restart of IPOs
Top-10 Capital Markets Trends – ChiNext Market
• ChiNext market or “growth enterprise board” in Shenzhen Stock Exchange preforming much better than SSE in 2014. Growth index ended 2014 at 1304.44, +82.73%
• Reasons for ChiNext growth: 1. Listing firms like the typically higher P/E ratios which mean
higher valuations than SSE 2. Threshold for getting listed in ChiNext lower than the SSE and
compared to the OTC market, liquidity and financing is much better
3. More than 50% of the first batch pre-IPO firms have applied to list on ChiNext market
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Top-10 Capital Markets Trends – ChiNext Market
-6.79% -10.91%
82.73%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100.00%
Shanghai A-share Shenzhen A-share ChiNext
2014 Stock Market Returns
Source: Shanghai Stock Exchange, Shenzhen Stock Exchange, 2014
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• The first batch of 50 new IPO firms will be listed in January 2014. Among which 6 firms will be on the SSE, 20 on the the SME board, and the remaining 24 on ChiNext
Top-10 Capital Markets Trends – Growth Enterprise Board
Source: Shanghai Stock Exchange, Shenzhen Stock Exchange, 2014
6
20
24
Number of the First Batch IPO Firms In A-share Market In January 2014
Main-board SME-board ChiNext
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Top-10 China Capital Market Trends for 2014 Trend Number 1: Asset Management Industry Trend Number 4: ChiNext Market Trend Number 7: Restart of IPOs
Top-10 Capital Markets Trends – Restart of IPOs
IPO facts • A-share market struggling; worry that IPOs will further strain liquidity • The first batch of 50 firms will be listed on main-board, SME board
and Growth Enterprise Board • Estimates are that IPO-based financing could reach RMB250B • New approval mechanism called IPO registration mechanism will
replace the previously complicated authorization pre-IPO process
Impact of new IPOs 1. A-share market will drop as new IPOs come on 2. Newly listed companies will have to contend with lower valuations 3. Examination of firm quality for registration => markets / investors
One potential solution is the implementation of a delisting mechanism 12
Top-10 China Banking Industry Trends for 2014
1. Emergence of Private Banks 2. Deposit Insurance System 3. Bankruptcy Regulations 4. Expansion of Credit Asset Securitization 5. Issuance of Bank’s First Preferred Stock 6. Negotiable Certificate of Deposit (NCD) 7. New Business Model: The Emergence of Direct Banks 8. Near Field Communication (NFC) Mobile Payments 9. Micro-chat Banks 10. Banks’ Opportunities Arising from Free Trade Zone (FTZ): Cross
-boarder RMB Business Development 11. Challenge from Money Funds such as Yue’bao 12. Banks shifting to business such as Financing Products
Top-10 China Banking Trends for 2014 Trend Number 1: Emergence of Private Banks Trend Number 2: Deposit Insurance System Trend Number 3: Bankruptcy Regulations
Emergence of Private Banks – Concept
Concept • There is no agreed definition of “private bank” in China • Private bank definition from Hexun:
– private banks are owned and run by non-governmental organisations. Modern financial enterprise with a singular owner.
• Non-governmental owned • Direction from and risk on non-state investors
Emergence of Private Banks – Background
• Commercial banks play a vital role in the economy to enable finance. Historically used to government to guide the economy
• Although non-government ownership in banks has increased, it is still very low in most banks
PBOC: China Bank Regulatory Commission
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Big Five Banks Nationwide Joint-Equity Commercial
Banks
145 City Commercial
Banks
Rural Financial
Institutions
5.30%
41%
54%
90%
The Share of Non-governmental Captial (end-2013)
Emergence of Private Banks – Background
• Non-government capital hasn’t changed governance -> capital typically flows into infrastructure projects or SOEs, rather than private enterprises (50% of China’s economy)
• SMEs face a serious capital shortage => turn to shadow banking • Private banks will hopefully fill the gaps and bring some stability to
shadow banking / SME lending
• July 5th, 2013 – General Office of the State Council published “Guiding Opinions” which set guidelines for private banks
• Suning Bank pre-approved on September 12th -> invested by Suning Commerce; first A share company to invest in a private bank
• End 2013: roughly 67 private banks with approved names by State Administration for Industry and Commerce including 30+ listed firms
• On January 6th, 2014, Shang Fulin, China Banking Regulatory Commission (CBRC) chairman started pilot of private banks
Emergence of Private Banks – Establishment criteria
“Non-confirmed” Criteria Details
Parent company qualification
Excellent corporate finance, business performance; adequate capital; strong corporate governance and risk control
Limited licenses Encouraged to specialized in particular field
Prudent regulatory standards
Qualified indicators such as Capital Adequacy Ratio based on size; changing over time
Risk handling system Clear risk management procedures including bankruptcy procedures
Top-10 China Banking Trends for 2014 Trend Number 1: The Emergence of Private Banks Trend Number 2: The Deposit Insurance System Trend Number 3: Bankruptcy Regulations
Deposit Insurance System – Overview
• A key part of mature economies to to protect bank depositors, in full or in part, from losses caused by a bank's inability to pay; key component of a financial system safety net that promotes financial stability
• Accelerated interest rate marketization -> deposit Insurance system is the precondition to push the liberated interest rate
• Accelerated liberated interest rate -> increasing competition among banks => banks need deposit insurance to guarantee savers’ benefits
• Private banks will also need deposit insurance to help develop their business
The Deposit Insurance System–Timeline
…the upcoming of deposit insurance system
2007 – deposit insurance system was on the agenda during the 3rd National Financial Work Conference
March 2011 – The Twelfth Five-Year Plan for National Economic and Social Development of the People’s Republic of China indicates acceleration of establishment of deposit insurance system
Nov 2013 – 3rd Plenum of the 18th Communist Party of China (CPC) establishes idea of deposit insurance system
Jan 2014—PBOC states that China is ready to start
deposit insurance system
Top-10 China Banking Trends for 2014 Trend Number 1: The Emergence of Private Banks Trend Number 2: The Deposit Insurance System Trend Number 3: Bankruptcy Regulations
Bankruptcy Regulations – Background
• China commercial banks are heavily influenced by central or local governments; governments typically prevent banks from failing
• In this context, commercial banks seems to depend on the government; bad loan balance growing for 7 successive quarters
433.3 422.9 407.8 427.9 438.2 456.4 478.8 492.9 526.5 539.5 563.6
0
100
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500
600
2011 Q1
2011 Q2
2011 Q3
2011 Q4
2012 Q1
2012 Q2
2012 Q3
2012 Q4
2013 Q1
2013 Q2
2013 Q3
Commercial Bank Balance of Bad Loans; Billion RMB
PBOC: China Bank Regulatory Commission
Bankruptcy Regulations – Overview
• Need for bankruptcy rules increased by setup of private banks • Risk control and management even more important as interest rate
liberalization continues. • Goes hand in hand with deposit insurance
Direction • PBOC states that they need to further research the fade-out
mechanism for financial institutions including risk premium and risk allocation mechanism.
• Currently there is no official announcement on bankruptcy regulation specifics. The framework and details are still in discussion.
Webinar: A look at the Top-10 China Financial Technology Trends for 2014
For more information about the topics covered in this webinar or Kapronasia, please visit www.kapronasia.com or send us an email: [email protected]. Twitter: @chinafintech
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