Wednesday 2 June 2021

Are China Banks that Cheap?

One industry that intrigues me is China's Banking Sector. China banks are currently priced at dividend yields of above 6% with price earnings ratio of less than 8 times. In comparison, the Singapore banks, are priced at dividend yields of 3-4% and price earnings ratio of 14-17 times.  

Based on these metrics, if China banks are to be of the same valuation as Singapore banks, their share price has to double.

Reasons why China Banks have such low valuations

A quick review online shows many analysts are skeptical about China banks' assets and their "earnings". They point to the lending bubble in China with claims that the Chinese banks are financially engineering their loan portfolio to report a low "non performing loans (NPL)" ratio of 1+%; this ratio is similar to what Singapore banks report. This allows China banks not to report a large credit provisions which will affect their P&L annually.

Online sources claim that the NPL of China loans are in the region of 10%, as opposed to the 1+% reported.

The skepticism of China's banks financial reports are the main reason why these banks valuations are that low.

Do I believe the online sources? Financial Ratios vs Credibility

This is something I have to think: whether to trust China banks' financial reports while weighing against the attractive valuations of these banks at annual dividends of 6 to 8% (Bank of China is providing 8% yield, while the rest are giving 6% yields). In addition, I notice that the Chinese banks earnings are stable with slight growth in earnings year on year. My evaluation is that there is a 50% upside when more individuals start to believe the financials of the banks or are attracted to these bank stocks.

Therefore, I plan to position a maximum of 2% of my overall portfolio in the Chinese banking sector. Above this, it might be too much of a risk.

I have started investing in the largest two banks in China - ICBC and CCB from today. Currently I have about 0.5% of my portfolio in the Chinese Banking sector. It will serve as my dividend stocks with some upside to be gained.


  1. wow and i thought u learnt your lesson buying weird shit like china fishery, ezion, first ship lease trust. plenty of good companies out there like boustead, facebook, tencent and u have to go buy those dubious crap companies like china banks which have opaque accounting.

  2. I am into china bank stock too. Vested in bank of china at around 2.9 hkd