Deng Xiaoping, born 110 years ago on Friday, said that development is the only hard truth. Any minority shareholder in Bank of China – which, like the other Big Four Chinese banks, is controlled by Deng’s successors – knows how hard.
With a market capitalisation of Rmb775bn ($126bn), BOC’s stock trades below book value. This is despite rallying a fifth over the past six months. When development is a hard truth, sober credit is not. In 2008, BOC’s lending to mainland borrowers rose by 15 per cent. It increased 56 per cent in the year after – the most of any of the Big Four banks. This amid a global slowdown. This was centrally mandated stimulus – now long gone.
Bears will argue that the shares will not re-rate until the crisis-era loans are cleaned up. BOC’s reported non-performing loan ratio is just 1 per cent, according to half-year results released this week. However, the tier one capital ratio fell 30 bps to 9.3 per cent as risk-weighted assets increased.