Warned by regulators again.

"Investor Network" Cui Yuechen

Recently, Bank of Xi'an (600928.SH), known as the "first stock" of northwest city commercial banks, has been in the spotlight.

According to the announcement, during the period from 2020 to 2022, Bank of Xi'an had inaccuracies in the classification of some financial assets under the "financial investments" item in the balance sheet. Although the bank's 2023 annual report disclosure has completed the rectification work related to the compliance requirements, Shaanxi Securities Regulatory Bureau still decided to issue a warning letter as a regulatory measure.

At the same time, the then chairman Guo Jun, president Liang Banghai, and deputy president in charge of finance Huang Changsong of Bank of Xi'an bear the main responsibility for the above issues and are warned together.

In response, Bank of Xi'an stated that regarding the regulatory measures issued by the Shaanxi Securities Regulatory Bureau, as mentioned in the announcement, it has completed rectification at the end of 2023 under the guidance of the regulatory authorities, and will further enhance the quality of financial information disclosure in accordance with regulatory requirements in the future.

Fined twice within one year.

According to its official website, Bank of Xi'an was originally established as Xi'an City Commercial Bank, formed by the combination of 41 original urban credit cooperatives in Xi'an and the Xi'an Credit Cooperative Union. It was renamed to Bank of Xi'an in 2010. In March 2019, Bank of Xi'an was listed on the main board of the Shanghai Stock Exchange, becoming the first A-share listed bank in the northwest region.

However, since its listing, Bank of Xi'an has been penalized by regulators multiple times due to compliance issues. In addition to being warned by the Shaanxi Securities Regulatory Bureau this time, in April this year, the company was ordered to correct internal governance issues by the Shaanxi Securities Regulatory Bureau.

According to the content of the regulatory measures decision, the current independent directors Zun Guoyu and Liao Zhisheng of the bank have served continuously for over 6 years as of November 2022. Zun Guoyu submitted his resignation report to the bank in March 2023, but the bank has not yet completed the selection of independent director. Liao Zhisheng, knowing that he has served continuously for more than 6 years, continues to serve and receive allowances, and has not submitted a written resignation report to the board of directors.

Public information shows that in the sixth session of the Board of Directors of Bank of Xi'an, Liao Zhisheng is a member of the Related Party Transaction Control Committee and Audit Committee, and serves as the Chairman of the Nomination and Remuneration Committee. Zun Guoyu is a member of the Strategic Committee, Nomination and Remuneration Committee, and Audit Committee, and serves as the Chairman of the Related Party Transaction Control Committee.

In response to the above issues, the Shaanxi Securities Regulatory Bureau has decided to impose corrective regulatory measures on Bank of Xi'an and its independent director Liao Zhisheng.

Bank of Xi'an stated to 'Investor Network' that the selection of independent directors has been completed, and that it will continue to establish a long-term mechanism to ensure the performance of independent directors and dynamically adjust it, fully exercising the role of independent directors in 'participating in decision-making, supervising restraint, and providing professional advice,' striving to enhance the compliance, effectiveness, and openness of corporate governance.

Slowed Performance Growth

As a bank formed by the integration of former urban credit cooperatives, Bank of Xi'an has been facing pressure from slow performance growth in recent years.

Wind data shows that from 2019 to 2021, Bank of Xi'an's revenue growth rates were 14.55%, 4.27%, and 0.91% respectively; net income growth rates were 13.27%, 3.05%, and 1.73%.

In 2022, Bank of Xi'an experienced a double decline in revenue and net income, with year-on-year declines of 8.82% and 13.55% respectively. Until 2023, the situation slightly improved. In 2023, the bank achieved revenue of 7.205 billion yuan, a year-on-year increase of 9.7%; net income of 2.462 billion yuan, a year-on-year increase of 1.56%.

It is worth mentioning that since its listing in 2019, Bank of Xi'an's total profit has been continuously declining. The annual report shows that from 2019 to 2023, the bank's total profit was 3.191 billion yuan, 3.074 billion yuan, 3.06 billion yuan, 2.475 billion yuan, and 23.96 billion yuan respectively.

As an important indicator to measure the profitability of banks, the net interest margin level of Bank of Xi'an is worth paying attention to. In 2020, Bank of Xi'an's net interest margin was still maintained at a level of 2.16%. However, by 2023, it had fallen to 1.37%, and this downward trend was not contained in 2024. By the end of the second quarter of this year, the bank's net interest margin further narrowed to 1.21%, with a net interest spread of only 1.12%.

Furthermore, the bank's net interest income has been declining for four consecutive years. The semi-annual report shows that the bank's net interest income for the first half of this year was 2.437 billion yuan, a decrease of 11.46% compared to the same period last year. Looking back, the growth rates of the bank's net interest income in 2021 and 2022 were -9.83% and -1.57% respectively.

In terms of asset quality, according to the semi-annual report, due to the increased risks in industries such as construction, real estate, manufacturing, and wholesale and retail trade, the bank's credit assets are under certain pressure. As of the end of June 2024, the bank's non-performing loan balance was 3.698 billion yuan, an increase of 35.36% from the end of the previous year; the non-performing loan ratio was 1.72%, up 0.37 percentage points from the end of the previous year.

The latest business data shows that in the first half of this year, Bank of Xi'an achieved revenue of 3.622 billion yuan, a year-on-year increase of 5.77%; net income of 1.337 billion yuan, a year-on-year increase of 0.31%; total profit of 1.299 billion yuan, a year-on-year decrease of 5.51%.

Several of the top ten shareholders have pledged their holdings.

Furthermore, several shareholders of Bank of Xi'an have pledged the bank's equity, casting a shadow over the stability of the equity.

According to the prospectus issued by Bank of Xi'an on September 20, 2024 financial bonds (first tranche), as of the end of 2023, in the top ten shareholders, Datang Xishi Cultural Industry Investment Group Co., Ltd. holds 0.635 billion shares, accounting for 14.27% of the total share capital of the bank, with the pledged shares accounting for 100% of its total holdings.

At the same time, Xi'an Financial Holdings Co., Ltd. holds 0.114 billion shares, accounting for 2.56% of the total share capital of the bank, with 50 million shares pledged, accounting for 44.01% of its total holdings; Xi'an Qujiang Cultural Industry Venture Capital Co., Ltd. holds over 0.1 billion shares, accounting for 2.26% of the total share capital of the bank, with 50 million shares pledged, accounting for 49.69% of its total holdings.

Generally speaking, a high percentage of pledged bank shareholder equity may have various impacts.

Firstly, it may have an impact on the bank's equity and daily operations. If shareholders obtain loans through equity pledges, defaults could potentially cause losses to the bank.

Secondly, it may also affect the bank's operational management. If the pledged equity of shareholders is involved in litigation, auctions, or major shareholders are listed as untrustworthy persons, this could have a negative impact on the bank's operational management, hindering capital replenishment.

In response to the above issues, Bank of Xi'an stated to 'Investor Net' that, regarding shareholder equity issues, a risk isolation mechanism has been strictly established with shareholders in compliance with regulatory requirements, continuously monitoring shareholder-related situations, and pledging of shareholder shares and their own operations will not substantially affect the bank's equity structure and daily operations.

It is noteworthy that in July 2024, Bank of Xi'an welcomed new helm Liang Banghai, facing important pressures and challenges such as performance pressure and regulatory penalties. How to lead Bank of Xi'an out of operational difficulties and restore the splendor of being the 'first stock' among Northwest City Commercial Banks still requires the market and time to provide answers. (Produced by Finance and Economics of Thought)