This article only represents the author's own views.
The latest annual results from Bank of Gansu Co. Ltd. (2139.HK) and Jiangxi Bank Co. Ltd. (1916.HK) — regional lenders anchored in two of China’s less developed provinces — paint a bleak picture of this corner of the Chinese financial sector.
Small regional banks like this pair are suffering the most in an industry-wide margin squeeze afflicting Chinese lenders. Loan demand is weak in a slowing economy, and the central bank’s low interest rate environment is crushing loan yields. At the same time, these smaller banks are struggling to reduce high costs for deposits. As their profitability comes under growing pressure, external capital support from their state-owned shareholders increasingly looks necessary. That would further undermine long-suffering private investors who have already seen the value of their shares shrivel.