ESG reports have always been considered a new topic in the investment field, but many investors actually cannot understand them. Currently, as many as 40% of A-share listed companies will regularly publish ESG annual reports, but it cannot be ruled out that some listed companies regard publishing ESG reports as a routine task. What is the problem? The banking industry has always been regarded as the best industry in ESG, both in terms of disclosure rates and ratings. However, under the halo, there are also dim corners, especially in the ESG work of small and medium-sized banks, where there is still much room for improvement, and Wuxi Rural Commercial Bank is one of them.
Wuxi Rural Commercial Bank Corporation (600908.SH) is officially named Wuxi Rural Commercial Bank Co., Ltd. As of the end of the first quarter of 2024, the total market value is approximately 12 billion yuan, ranking sixth in the 10 listed rural commercial banks in A shares, with total assets of approximately 250 billion yuan.
Looking at the entire banking sector, Wuxi Rural Commercial Bank's scale is far from being comparable to that of state-owned banks, joint-stock banks, and head-city commercial banks, but it ranks high in thousands of rural credit institutions and is a typical small and medium-sized bank. For investors and scholars who are concerned about the ESG governance of the banking industry, the research object should not be limited to the large and prominent banks. Attention should also be paid to the hundreds and thousands of small and medium-sized banks. How is their ESG governance level? Wuxi Rural Commercial Bank is a representative example and model.
ESG scores lag behind, and the stock price is also languishing. For investors and scholars who are concerned about the ESG governance of the banking industry, the research object should not be limited to the large and prominent banks. Attention should also be paid to the hundreds and thousands of small and medium-sized banks. How is their ESG governance level? Wuxi Rural Commercial Bank is a representative example and model.
The market generally believes that banks write good ESG reports, but after reading Wuxi Rural Commercial Bank's "2023 Annual Social Responsibility Report", the first impression is simple and even crude. The report is a relatively short ESG report that is mostly text-based and lacks graphical representation or design layout. Is it because Wuxi Rural Commercial Bank is relatively small and has no energy to do a good job in ESG reporting? Compared with another hundred billion-dollar-valued Qingdao Rural Commercial Bank Corporation (002958.SZ), which has a colorful and beautifully designed "2023 Social Responsibility Report", it shows that Wuxi Rural Commercial Bank needs to put more effort into polishing its ESG reports.
Wuxi Rural Commercial Bank's ESG report spans 30 pages and is a relatively short ESG report. It is mostly text-based and lacks graphical representation or design layout. This could be because Wuxi Rural Commercial Bank is relatively small and has no energy to do a good job in ESG reporting. Compared with another hundred billion-dollar-valued Qingdao Rural Commercial Bank Corporation (002958.SZ), which has a colorful and beautifully designed "2023 Social Responsibility Report", it shows that Wuxi Rural Commercial Bank needs to put more effort into polishing its ESG reports.
According to Wuxi Rural Commercial Bank's ESG report, it was compiled based on several documents, including the "Opinions on Strengthening the Social Responsibility of Banking and Financial Institutions" issued by the China Banking Regulatory Commission, the "Guidelines for Corporate Social Responsibility of Chinese Banking and Financial Institutions" issued by the China Banking Association, and the "Guidelines for Preparing Reports on the Fulfillment of Corporate Social Responsibility
The report is divided into seven parts, mainly introducing the content of six aspects: governance ability, steady operation, customer care, environmental protection, people-oriented, and social welfare, covering the three major directions of environmental protection, social responsibility, and corporate governance in the ESG framework.
The ESG report of Wuxi Rural Commercial Bank has relatively scarce data and is not detailed enough. Except for data such as loan balance that are already available in the financial report, this report does not add other indicators such as carbon emission or provide a key ESG performance table. It has not played a good role as the so-called "second financial report" under ESG reporting requirements.
ESG rating also reflects that Wuxi Rural Commercial Bank's ESG governance work has room for improvement. According to Hithink RoyalFlush Information Network's ESG data, Wuxi Rural Commercial Bank's ESG rating is "BBB" with a score of 69.77. Among the 42 banks classified by Shenwan Yi's level one bank, it ranks twenty-fourth, and among the ten rural commercial banks, it ranks third. According to Trustway's data as of the end of April, Wuxi Rural Commercial Bank ranks only seventh among the ten listed rural commercial banks in terms of ESG, and CIC gives it ninth.
Wuxi Rural Commercial Bank's ESG report has relatively scarce data and is not detailed enough. Except for data such as loan balance that are already available in the financial report, this report does not add other indicators such as carbon emission or provide a key ESG performance table. It has not played a good role as the so-called "second financial report" under ESG reporting requirements.
ESG rating also reflects that Wuxi Rural Commercial Bank's ESG governance work has room for improvement. According to Hithink RoyalFlush Information Network's ESG data, Wuxi Rural Commercial Bank's ESG rating is "BBB" with a score of 69.77. Among the 42 banks classified by Shenwan Yi's level one bank, it ranks twenty-fourth, and among the ten rural commercial banks, it ranks third. According to Trustway's data as of the end of April, Wuxi Rural Commercial Bank ranks only seventh among the ten listed rural commercial banks in terms of ESG, and CIC gives it ninth.
The trend of Wuxi Rural Commercial Bank's stock price is not good. Although the stock price of Wuxi Rural Commercial Bank has risen by more than 5% from the beginning of 2024 to mid-June, it ranks eighth from the bottom among the 42 A-share listed banks. Especially since June, the company's stock price has declined from 5.65 yuan to 5.34 yuan on June 14, a drop of about 5.5%.
Weak performance is not closely related to the fundamentals, the company's operations in the first quarter of 2023 and 2024 remained stable. In 2023, Wuxi Rural Commercial Bank's operating income was CNY 4.538 billion, a year-on-year increase of 1.28%; net income was CNY 2.2 billion, a year-on-year increase of 9.96%. In response to this, the Pacific Securities published a research report on May 8th, stating that the revenue growth rate maintained steady growth, and the profit growth rate slowed down slightly. In addition, the overall scale is steadily expanding, the inclusive loan growth is impressive, the asset quality is superior, the provision coverage ratio is high, and the risk level remains low. The performance in the first quarter of 2024 also maintained good performance, with revenue growth rate rebounding and profit growth rate slightly falling.
Since it is not a fundamental problem, what is the reason for the sluggish stock price? The problem may lie in the negative news on the message front. From the perspective of ESG framework analysis, the recent discussions and controversies have exposed the shortcomings of Wuxi Rural Commercial Bank in social responsibility and corporate governance.
Being accused of ignoring the interests of minority shareholders.
In the context of regulatory initiatives for listed companies to actively pay dividends and enhance investor experience, and with banks as traditional dividend payers being proactive in responding to the call, Wuxi Rural Commercial Bank's dividend plan has been reportedly opposed by small and medium stockholders for being out of sync.
According to Securities Star, Wuxi Rural Commercial Bank planned to issue a dividend of CNY 2 per 10 shares (including tax), with a cash dividend of approximately CNY 439 million this year. Under this plan, the dividend ratio is less than 21% of the current net profit attributable to ordinary shareholders of the listed company and has declined year by year for three consecutive years.
Many small investors voted against the dividend plan in the shareholders' meeting. According to the cash dividend voting results announced by Wuxi Rural Commercial Bank on May 11th, 3.38% of shareholders holding less than 1% of ordinary shares and 13.73% of shareholders with a market value of less than CNY 500,000 expressed opposition.
Small shareholders expressed opposition because compared with the entire industry, the dividend payout ratio of Wuxi Rural Commercial Bank is indeed low. According to a survey by Securities Star, more than 20 of the 42 A-share listed banks have a dividend payout ratio of more than 30%, while Wuxi Rural Commercial Bank's dividend payout ratio ranks low. Some investors who claimed to have held shares in the company for a year inquired on the investment platform why the dividend payout ratio has been declining. Wuxi Rural Commercial Bank responded that determining the dividend level is based on a cautious perspective, taking into account sustainable development and meeting regulatory requirements, and fully balancing the interests of investors.
From the perspective and framework of ESG, the small shareholders' questioning and voting against the company's dividend resolution is an exercise of their rights as shareholders, which is also a basic principle of corporate governance. Wuxi Rural Commercial Bank's truthful disclosure of the voting results also reflects that it has maintained transparency as a listed company in its decision-making.
The actual results and public feedback indicate, and the opposition vote of small and medium shareholders is a warning to the company's risk, especially ESG governance risk. Although this opposition vote did not have a substantial impact on the company's decision-making, it still reminded Wuxi Rural Commercial Bank to respect all stakeholders and reflect on whether the quality of its decision-making is wise enough.
In the ESG framework, "shareholder rights" is considered an important aspect of social responsibility (S) governance level. In the ESG ratings of Wuxi Rural Commercial Bank by Huazheng and Zhiding, social responsibility has the lowest score among the three aspects.
High-speed growth in real estate loans
Another trend that runs counter to the industry is the bank's increased investment in the real estate industry in 2023. Multiple media outlets have noticed that by the end of 2023, the bank's outstanding loans to the real estate industry had increased by about 75% to CNY 1.2599 million from CNY 0.7059 million at the end of 2022.
However, what is needed is that although the magnitude of the change is relatively large, the absolute value of loans to the real estate industry is not high. Even if it rises to CNY 1.2599 million, it only accounts for 0.88% of the bank's total loans, and the risk is relatively controllable.
From the ESG perspective, the attention paid by the public to Wuxi Rural Commercial Bank's accelerating the injection of real estate industry loans against the trend also indicates the market's concern about the bank's risk exposure to the real estate market, and reminds investors to evaluate potential credit and market risks. Such risk management work is an important part of corporate governance (G).
Fortunately, institutions are still relatively confident about Wuxi Rural Commercial Bank's risk management situation. In a research report released on May 28th, Guosen Securities pointed out that the non-performing loan ratio of the company at the end of the first quarter remained at 0.79%, which is still at a low level; the provision coverage ratio, which is often regarded as a bank's asset "safety cushion", was as high as 515.35%, a decrease of 7.22 percentage points from the beginning of the year.. The attention rate reflecting the strictness in identifying non-performing assets recorded 0.51% in the first quarter, an increase of 0.09 percentage points from the beginning of the year. "Overall, the company's asset quality remains excellent," the research report said.
The equity is dispersed and recently received a stake from an insurance company.
Another issue in the ESG governance of Wuxi Rural Commercial Bank is the stability of its shareholding structure in the corporate governance (G) section.
Wuxi Rural Commercial Bank is a relatively widely held bank. According to data from Tianyancha, there are no shareholders holding more than 10% of the shares. The current largest shareholder is Wuxi Taihu New Town Asset Management Co., Ltd., with a shareholding ratio of 8.9%. In addition, other shareholders with relatively high shareholding percentages include Guolian Trust Co., Ltd. and Wuxi Xingda Nylon Co., Ltd.
For ESG governance of a company, the lack of shareholders with high shareholding ratios means uncertainties in the company's control, which may affect the company's long-term strategic planning and execution. It may also be more likely to be passive in resisting hostile takeovers. In addition, the lack of support and synergy from major shareholders makes it more challenging to demonstrate the company's ability to create long-term value. However, everything has two sides. Although the lack of major shareholders with high shareholding ratios may lead to a more dispersed governance structure and increased decision-making complexity, a dispersed shareholding structure may reduce the influence of a single shareholder's decision-making dominance and help achieve more balanced governance.
Changes in the shareholding of Wuxi Rural Commercial Bank are also uncertainties affecting the ESG performance. In January 2024, China Great Wall Asset Management Co., Ltd. completed a stake in Wuxi Rural Commercial Bank, with a shareholding ratio exceeding 5%. The first quarter report shows that the entity China Great Wall Life Insurance Co., Ltd. - proprietary funds holds a shareholding ratio of 6.97% in Wuxi Rural Commercial Bank.
Recently, China Great Wall Life Insurance Co., Ltd. has taken frequent actions in the capital market and has frequently taken stakes in listed companies in 2024, including Wuxi Rural Commercial Bank and Jiangxi Ganyue Expressway ( 600269.SH ) , etc. Tianyancha data shows that China Great Wall Life Insurance Co., Ltd.'s major shareholders include Beijing Huarong Comprehensive Investment Co., Ltd. with a background of Beijing state-owned assets, as well as Beijing Jinhao Real Estate Development Co., Ltd.
The market also noticed that the shareholder whose shareholding ratio in Wuxi Rural Commercial Bank has rapidly increased, and its own business situation is probably not optimistic. Since 2023, China Great Wall Life Insurance Co., Ltd. has been losing money.
For investors focused on ESG investment, the strength and influence of a company's major shareholders have an important impact on the corporate governance structure (G). If major shareholders can play a synergistic effect, it will benefit both performance and ESG performance; however, if major shareholders cannot effectively participate in corporate governance, it may lead to lack of transparency in decision-making and unclear long-term prospects for planning.
Stakeholder trust is also a key concern in the ESG framework. The behavior and decisions of major shareholders are crucial to establishing and maintaining stakeholder trust, which affects the company's social responsibility (S) performance. Specific to Wuxi Rural Commercial Bank, whether the new major shareholder can bring some business synergy remains to be seen.
Wuxi Rural Commercial Bank focuses on the prosperous economy in southern Jiangsu Province and conducts business around the regional economic development strategy, including the Yangtze River Delta integration. The 'small but beautiful' route of rural commercial banks has been well-received by many institutions and is expected to continue. However, in terms of improving ESG governance, especially in valuing the voices of small and medium shareholders and balancing the interests of all stakeholders, more effort is needed to do better.
Author | Han