Summary of Key Points
After taking over as the fifth president of China Merchants Bank, Wang Xiaoqing's most urgent task is to restore the bank's valuation. In the past, China Merchants Bank (CMBC) enjoyed a valuation significantly higher than its peers due to its high Return on Equity (ROE), rapid growth, and strong retail business. However, this narrative has been challenged since 2021, with the Price-to-Book (PB) ratio plummeting from 1.82 to 0.76 (as of June 2026), making it one of the banks with the largest declines in valuation among A-share listed banks. The reasons include difficulties in reducing borrowing costs, a slowdown in retail business growth, and the impact of fee reduction policies on intermediary services. CMBC has established a market value management team to address these issues from three aspects: value creation, value discovery, and value management. The new president needs to change market perceptions and demonstrate that CMBC is still worth a valuation higher than the industry average.
Detailed Analysis
1. How significant was the valuation drop?
CMBC was once considered a star in the banking sector, with a PB ratio of 1.82 in June 2021, indicating that the market was willing to pay a premium for its future prospects. However, the ratio has since dropped significantly, falling below 1 for the first time in July 2022 (meaning the stock price was lower than the net asset value), and reaching a low of 0.645 in 2025 before rising slightly to 0.763 in June 2026, a decrease of 27.6% in one year. Compared to the industry, the PB ratio of the banking sector as a whole decreased by 0.23 from July 2025 to June 2026, while CMBC's ratio fell by 0.291, far exceeding the industry average of 0.07%. Over the past five years, CMBC's PB ratio has decreased by more than half, effectively eroding the previous valuation premium.
2. Why did CMBC experience a more severe decline?
While the overall industry valuation decline is a contributing factor, CMBC's specific problems are more pronounced:
- Difficulty in reducing borrowing costs: CMBC relies heavily on customer deposits (accounting for around 85%, higher than larger state-owned banks), with a significant proportion of these being demand deposits (over 50%). This was once an advantage due to lower costs, but now there is little room for further cost reduction. Other banks can still lower costs by attracting more deposits and increasing the proportion of demand deposits, whereas CMBC has reached its limit, leading to a narrowing of its net interest margin.
- Slowing retail business growth: The retail business has been CMBC's main source of revenue and profit (since 2015). However, the real estate market adjustment and consumers' reluctance to borrow have caused retail loan growth to slow from 14.46% to 3.62% in 2025. Although corporate loan growth accelerated to 10.88% in 2025, it has not been sufficient to offset the decline in the retail business, resulting in slower overall asset expansion.
- Significant impact of policy changes on intermediary services: CMBC relies heavily on fees from services such as credit card installment payments and wealth management. In 2020, regulatory requirements led to fee reductions, which decreased CMBC's fee income by 22.3%, significantly impacting its revenue growth (with revenue even declining in 2023).
3. Three strategies to restore valuation
CMBC has established a market value management team to address these issues through the following approaches:
- Value creation: Strengthening the bank's fundamentals by increasing loan issuance, consolidating its retail advantages (e.g., through digital transformation), and developing unique services for corporate clients. The bank also needs to optimize its asset-liability structure and improve the efficiency of capital utilization to stabilize its net interest margin.
- Value discovery: Reconnecting with the market to explain why CMBC remains a good investment. This includes engaging more with investors, presenting transformation progress, and attracting long-term investors such as insurance and pension funds, which place more emphasis on long-term value.
- Value management: Returning profits to shareholders through increased dividends (from 30% to 35.34% in 2025) and implementing an interim dividend for the first time. Although there are no plans for share repurchases for now, CMBC believes its current operations are strong and does not need to rely on share repurchases to boost the stock price.
4. The new president's challenge: Changing market expectations
The current market view is that CMBC is a good bank, but not worth the high valuation it once enjoyed. Wang Xiaoqing's task is to bridge the gap between the bank's actual performance and market expectations. This involves demonstrating that CMBC can continue to achieve higher ROE and growth than the industry. Questions such as whether the retail business can accelerate, whether the corporate business can make up for the decline in the retail sector, and whether the intermediary services can find new growth areas need to be addressed. Only by resolving these issues will the market be willing to re-evaluate CMBC's valuation.
In summary
Restoring CMBC's valuation is about “proving itself again” as a mature bank with continued strengths, rather than a high-growth “top student” from the past. This is the biggest challenge Wang Xiaoqing faces as she takes on her new role.