Bank of Communications executives snap up shares

Bank of Communications Co said 13 of its executives have purchased 563,100 of its shares on the open market, a move to boost confidence for bank stocks. Xun Congjun / For China Daily

Bank of Communications Co said 13 of its executives have purchased 563,100 of its shares on the open market in Shanghai, a move analysts said was intended to boost confidence amid a bear market atmosphere for bank stocks.

The bank's shares have fallen 18 percent over the past 12 months.

Bank of Communications, the nation's fifth-largest lender, announced on Wednesday night that the executives and directors used their own funds to buy the shares on Tuesday and Wednesday at prices between 3.75 yuan (60 cents) and 3.77 yuan, spending at least 2.1 million yuan in all.

The shares will be "locked up" from trading for three years from the day of purchase under Chinese regulations. The buyers included Chairman Niu Ximing and President Peng Chun.

It's believed to be the first instance in which executives of a listed domestic bank used their own funds to buy the company's shares. Previously, Central Huijin Investment Ltd, the State-backed shareholder of China's biggest banks, often bought bank shares when the market slumped, which would effectively boost investors' confidence.

Compared with the lender's 74 billion shares outstanding at the end of March in Shanghai and Hong Kong, the purchase seems limited, but it sends an important signal that top management is optimistic about the company's performance, analysts said.

"Their conduct shows top management has faith in the stable growth of the bank," said Lian Ping, chief economist with Bank of Communications. Lian said bank shares are undervalued at present and are worthy of long-term investment.

Other analysts had various explanations for the move.

"It's worth noting that the authorities might have been considering issues about the incentive system for top management teams at State-owned commercial banks against the backdrop of broad reform of State-owned enterprises," Gan Zongwei and Wen Qingjing of UBS Securities AG wrote in a note on Thursday.

"We expect if substantial progress is made in promoting employee stock ownership plans and equity incentive mechanisms for top management in China's commercial banks, it will help improve their operating efficiency as employees' and executives' interests become more related to the banks' performance," they added.

"It might be part of preparations for issuing preferred shares," said Zito Ji, an analyst at a mutual fund in Shanghai.

Burdened by their shares' underperformance, Chinese banks are preparing to issue preferred shares to raise funds. Preferred shares take priority over common shares in the distribution of profits and upon liquidation but provide holders with only limited rights in companies' operations.

Investors are becoming more concerned about banks' earnings capacity as interest rate liberalization stimulates more competition in the sector. There's also concern about pressure from online financial service providers. And the risks associated with nonperforming loans are rising as economic growth slows.

Bank of Communications reported 62.3 billion yuan profit in 2013, up 7 percent year-on-year.