World's Worst-Performing Bank Lent Billions To China's Evergrande

It was once hailed as the future of Chinese banking, a privately run lender that would mint money by outmaneuvering its state-owned rivals. An ill-fated push into property lending has instead turned China Minsheng Banking Corp. into one of the biggest casualties of the real estate debt crisis that’s roiling Asia’s largest economy, Bloomberg reported.

Photo Insert: China Minsheng Bank in Beijing

Battered by mounting losses on loans to developers including China Evergrande Group, Minsheng’s stock tumbled 31% in the 12 months through last week — the worst performance in the 155-member Bloomberg World Banks Index. Hedge funds and other short-sellers are more bearish on the lender than any of its global peers.

The bank, founded in 1996 as China’s first non-state controlled lender, is now in damage control mode. It has restructured its real estate finance group to give more power to local branch managers, made reducing holdings of property debt a top priority for 2022, and plans to cut salaries for some staff by half, the people said, asking not to be named discussing private information.

Minsheng’s plight underscores the widening fallout from Chinese President Xi Jinping’s crackdown on the property industry and other parts of the country’s capital-hungry private sector. It also offers a warning to global financial firms that are investing billions of dollars to expand in China: Bets that seem like sure things can quickly sour when the nation’s policymakers decide to change course.

Minsheng has about 130 billion yuan (US$20 billion) of exposure to high-risk developers, amounting to 27% of its so-called tier-1 capital, the most among big Chinese lenders, Citigroup Inc. analysts estimated in a September research report.

The bank will need years to work through its bad debt problem and a capital injection from a stronger rival can’t be ruled out, said Shen Meng, director at Chanson & Co., a Beijing-based boutique investment bank.

This isn’t the first time Minsheng has faced a reckoning after a period of rapid growth. In 2009, Dong Wenbiao, who helped found Minsheng alongside other wealthy Chinese businessmen including pig-feed tycoon Liu Yonghao and property mogul Lu Zhiqiang, orchestrated the bank’s push into steel-industry lending as part of a goal to become the most profitable bank in China.

While Minsheng’s earnings surged at an annual rate of nearly 50% over the next five years, a steel sector downturn ultimately led to a pileup of bad loans and Dong left the bank in 2014.

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