Summary of Key Points
Everbright Bank has recently established a market value management team, but it faces two major challenges: First, the bank is questioned by the market for potentially "hiding nearly 20 billion yuan in bad debts" (the difference between loans classified as Stage Three according to accounting standards and those considered non-performing loans according to regulatory standards). Second, its financial performance has been declining steadily, with revenue shrinking for four consecutive years and net profits remaining weak. As a result, the bank's stock price has underperformed, dropping by 7% this year and 5.58% in 2025. The key to market value management lies in addressing fundamental issues (declining profitability and doubts about asset quality), rather than relying solely on capital instruments.
The 20 Billion Yuan "Bad Debt" Controversy: Accounting Differences or Deliberate Concealment?
The so-called "20 billion yuan in bad debts" mentioned by the market actually refers to the difference between two figures in Everbright Bank's 2025 annual report: Stage Three loans (70.65 billion yuan) - Non-performing loans (50.742 billion yuan) = 19.9 billion yuan. These are not the same thing:
- Non-performing loans: According to regulatory "five-level classification" (normal, watchful, substandard, doubtful, and loss), the latter three categories are considered bad debts, which are definitively uncollectible (e.g., loans that are more than 90 days overdue).
- Stage Three loans: These are loans classified under IFRS 9 accounting standards as "at-risk loans" that may become non-performing in the future. The main purpose of this classification is to allow for early provision for potential losses, preventing sudden financial crises.
Why is there a difference?
- When determining non-performing loans, regulators consider collateral (e.g., a loan with sufficient property as collateral may not be classified as bad). However, accounting for Stage Three loans only focuses on whether the loan will lose value in the future, regardless of collateral.
- New regulations (implemented in July 2023) require that loans overdue for 90 days be classified as non-performing. However, banks are still in the transition period until the end of 2025.
Comparing with other banks, state-owned giants (such as Agricultural Bank of China and China Construction Bank) and leading commercial banks (such as China Merchants Bank and CITIC Bank), the difference between Stage Three loans and non-performing loans is nearly zero. Banks like Everbright and Minsheng have larger differences, indicating that Everbright may be more lenient in identifying bad debts. This, combined with the lack of clear explanations from the bank, has sparked doubts.
Persistent Performance Decline: Where Do the Problems Lie?
Everbright Bank's performance ranks among the lowest among commercial banks:
1. Revenue has been declining for four consecutive years: 0.73%, 3.92%, 7.05%, and 6.72% in 2022-2025, with another 3.85% decline in the first quarter of 2026 (most commercial banks have already resumed growth).
2. Weak asset expansion: Asset growth rates were only 2.75% and 2.96% in 2024-2025, and there was even negative growth in the first quarter of 2026 (leading commercial banks have growth rates of over 5%). The reason is that the bank cannot attract high-quality customers and fears that increasing lending will lead to more bad debts.
3. Low net interest margin: The net interest margin was 1.4% in 2025 (compared to 1.87% for China Merchants Bank and 1.71% for Industrial Bank), due to high deposit costs (lack of high-quality customer bases) and low loan yields (weak competitiveness).
4. Ineffective intermediary business: Although the bank has advantages in areas like cloud payment services (which generate significant traffic) and wealth management products, these efforts have not been successful. Cloud payment services mainly generate fees rather than generating wealth management revenue, and the bank's investment research capabilities are insufficient, making it difficult to attract customers for wealth management products.
5. Unstable management: There has been frequent turnover of talent, with employees leaving for other banks or regulatory agencies, hindering the implementation of strategic plans.
The Challenges of Market Value Management: Fundamental Issues Are Key
Market value management is not about manipulating stock prices; it involves three key aspects:
1. Solid business operations: Good performance is essential (you can't cook a meal without rice).
2. Value discovery: Transparent financial reporting and communication with investors.
3. Value creation: Using capital instruments such as dividends and share repurchases.
Everbright's problem lies in its weak fundamentals: declining revenue and unresolved doubts about bad debts. Simply establishing a market value management team or repurchasing shares will not be effective. The market is most concerned about the potential hiding of bad debts and the persistent poor performance. These issues must be addressed before the bank can improve its market value.
How to Break the Pattern: Comprehensive Improvements in Business Operations and Reporting
To boost its market value, Everbright needs to take the following steps:
1. Improve quality and efficiency to reverse declining performance:
- On the asset side, reduce low-yielding corporate loans and focus on "low-capital, high-income" businesses such as cloud payment services and wealth management (e.g., converting traffic from cloud payment services into wealth management customers). Strictly control high-risk loans in the real estate and local platform sectors.
- On the liability side, attract more low-cost retail deposits (e.g., demand deposits) and reduce reliance on costly interbank funds.
2. Transparent reporting to dispel doubts:
- Regularly explain the difference between Stage Three loans and non-performing loans (e.g., identify which loans are secured and which are in the transition period). Provide data to support your statements and avoid being either ambiguous or outright denial.
- Disclose more details in financial reports to make them understandable and credible to the market.
3. Stabilize management to implement strategies: Reduce talent turnover and ensure that strategic initiatives (such as cloud payment services and wealth management) are consistently executed, without changing direction with each new leader.
Conclusion
Everbright Bank's market value management cannot be resolved by just establishing a team. The focus should be on improving performance and clarifying doubts about bad debts, demonstrating tangible improvements to the market. Otherwise, efforts to boost the stock price will not be convincing to investors. After all, the capital market ultimately values real financial results and transparent, credible business operations.