Guangzhou Rural Commercial Bank has launched another major divestiture of non-performing assets, marking its third consecutive year of large-scale asset disposals, with a cumulative total exceeding 48 billion yuan. However, the frequent asset sales have not overcome the dual challenges of declining profitability and worsening asset quality. The question remains whether this trillion-yuan rural commercial bank can navigate through its predicament.
On October 9, Guangzhou Rural Commercial Bank (1551.HK) drew attention once more with the announcement of a significant asset transfer. The bank's board of directors has approved a one-time transfer of debt assets amounting to 18.928 billion yuan to an asset management company (AMC), with an initial pricing of 12.2 billion yuan. After accounting for impairment provisions, this transaction will yield a "slight premium" of 68 million yuan. However, for a bank with total assets exceeding 1.3 trillion yuan, this amount is virtually negligible. What truly unsettled the market was the fact that this marks Guangzhou Rural Commercial Bank's third consecutive year of initiating over 10 billion yuan in non-performing asset disposals.
According to publicly disclosed information, as of December 31, 2023, the bank sold asset packages with a book value of 14.59 billion yuan for a total consideration of 9.467 billion yuan to 105 buyers. In December 2024, the bank once again listed an asset package valued at 14.59 billion yuan, with real estate loans making up the majority at a principal balance of 11.466 billion yuan, accounting for 96.67%. This was ultimately acquired by Guangzhou Asset for 9.993 billion yuan. The most recent package, scheduled for sale in October 2025, is worth 18.9 billion yuan.
In this package, leasing and business services account for the largest portion at 5.808 billion yuan (38.78%), followed by real estate at 3.064 billion yuan (20.46%) and wholesale and retail at 2.437 billion yuan (16.27%). All three disposals share a common feature: substantial public sector loans concentrated in leasing, real estate, and wholesale and retail sectors. With the current transaction, Guangzhou Rural Commercial Bank's cumulative asset disposals within three years will exceed 48 billion yuan, representing nearly 20% of its public sector loan balance as of the end of 2022.
Regarding this substantial non-performing asset transfer, Guangzhou Rural Commercial Bank stated, 「Asset transfer is a routine operation for commercial banks and common practice among banking peers. Through this transfer, we aim to further optimize our business structure and asset quality, enhancing our risk resistance capabilities, and laying a foundation for stable operations and long-term development.」
Risk Exposure: Overdue Loans Surge by 19 Billion in Six Months While large-scale disposals of non-performing assets are routine for many banks, underlying this standard practice is a rapid increase in the bank's overdue loans. Data indicates that by the end of June 2025, Guangzhou Rural Commercial Bank reported non-performing loans of 14.219 billion yuan, with a non-performing loan ratio of 1.98%, up 0.32 percentage points since the start of the year. Overdue loans reached 51.09 billion yuan, increasing by 19.02 billion yuan since the year's beginning. The overdue loan ratio rose to 7.12%, a 2.67 percentage point increase and the highest level since the bank's listing in 2017.
By industry, the non-performing loan ratios for wholesale and retail, leasing and business services, and agriculture, forestry, animal husbandry, and fishery stand at 4.48%, 0.87%, and 9.56%, respectively. Notably, while the non-performing loan balance in agriculture, forestry, animal husbandry, and fishery is only 839 million yuan, its non-performing ratio approaches double digits, indicating a structural risk with "small balance, high non-performing" issues in certain traditional agricultural sectors.
Potential buyers for this transaction are expected to be national asset management companies, likely employing a "discount purchase + reverse collection" model: AMCs will purchase the debt assets at an approximate discount rate of 64%, and Guangzhou Rural Commercial Bank will continue with the collection process, sharing collection proceeds according to an agreed ratio.
In response to the escalating risk exposure, Guangzhou Rural Commercial Bank highlighted that, in recent years, the complex macroeconomic environment has led to difficulties for some enterprises and pressure on resident income and employment. This, combined with falling property prices and increased difficulty in asset disposal, has placed overall asset quality under pressure. The 「Classification of Financial Assets Risk in Commercial Banks」 introduces new provisions regarding asset risk classification principles and standards, raising the requirements for risk classification within commercial banks. To manage risks prudently, the bank has strengthened asset quality control and credit risk management, actively disclosing risk situations, and promptly adjusting risk classifications.
Profit Pressures: Impairment Provisions Weigh on Profits While the bank is undergoing asset disposals, its profitability remains challenging. According to the semi-annual report, in the first half of 2025, Guangzhou Rural Commercial Bank reported an operating income of 8.037 billion yuan, a year-on-year increase of 9.41%. However, net profit fell to 1.51 billion yuan, down 11.21% year-on-year. An analysis of the profit statement reveals that the primary reason for the profit decline is not business contraction but persistent high impairment losses: In the first half of the year, asset impairment losses were 3.44 billion yuan, an increase of 230 million yuan year-on-year; the provision coverage ratio stood at 188%, down 8 percentage points from the beginning of the year. Excluding the impact of impairment, the bank's pre-tax profit actually grew by 6.7%.
In response to the reasons behind the profit decline, Guangzhou Rural Commercial Bank stated that, in the first half of 2025, it fully implemented high-quality development requirements, continuously advancing business structure transformation while significantly compressing low-yield assets and optimizing the structure of deposit terms. The bank also made efforts to expand composite financial services and optimize its financial market business structure, thus effectively enhancing its asset-liability structure and achieving a 9.41% year-on-year increase in operating income. However, the bank has consistently maintained a high level of asset impairment provisions to strengthen risk management, resulting in net profit declining despite the increase in operating income.
Capital Adequacy Ratio: 0.5 Percentage Point Buffer from Reduced Risk Weights According to the announcement, upon completion of this asset transfer, Guangzhou Rural Commercial Bank's risk-weighted assets will decrease by approximately 10 billion yuan, with its capital adequacy ratio expected to improve by 0.4–0.5 percentage points. Based on a capital adequacy ratio of 13.02% at the end of June 2025, this transaction would raise the figure to around 13.5%, exceeding the regulatory minimum requirement by 2 percentage points, indicating limited short-term capital pressure.
However, it is noteworthy that large-scale asset disposals over three consecutive years have already had an "erosive effect" on the bank's core Tier 1 capital: between 2022 and the first half of 2025, the core Tier 1 capital adequacy ratio decreased from 11.1% to 9.9%. If the bank continues to offload substantial assets with stagnant profit growth, its capacity for internal capital replenishment will further diminish.
"Three consecutive years and a cumulative 47 billion yuan in asset disposals is exceedingly rare among domestic rural commercial banks," industry insiders noted. "This indicates both Guangzhou Rural Commercial Bank's strong determination to clear risks and highlights aggressive early credit strategies." Should the bank complete this transaction by the end of 2025 and simultaneously reduce exposure to high-risk sectors, asset quality could see an inflection point in 2026. However, this hinges on resolving the structural contradiction of "new non-performing loans consistently exceeding disposal volumes."
Guangzhou Rural Commercial Bank has acknowledged that it will continue to prioritize "adjusting structure, controlling risks, and promoting development," comprehensively strengthening reform and innovation while combating risks and optimizing asset structure. However, the bank did not specify concrete targets for non-performing loans or profit growth. From the first 10 billion yuan asset disposal in 2023 to the 18.9 billion yuan transaction in 2025, Guangzhou Rural Commercial Bank attempts to leverage "time to exchange for space" to address historical burdens. Yet, the market is more concerned about whether another 10 billion yuan asset package is on the horizon amid a weak macroeconomic recovery and ongoing adjustments in the regional real estate sector. Time for Guangzhou Rural Commercial Bank to prove itself may soon be limited to just one accounting year.