To be fair, can't this also be a reflection of how opaque Chinese markets are to most people? And you know how negative Westerners like to be on anything regarding China, regardless of whether it has factual basis behind it. Coincidentally (or not) that's also where the vast majority of financial institutions are based.
There are plenty of Chinese companies that trade at astronomical valuations. So this is not due to any 'opacity'.
SOEs in China are near-universally priced at below book value because everybody knows they are taxed at higher rates and obligated to invest according to national priorities rather than just maximizing returns on equity. They also tend to be in capital intensive industries which lowers price to asset ratios by default.
Whether a bank is solvent or not depends on whether the defaulted share of its loans is large enough to put its equity in the negative. Price to asset ratios on the stock market tell you nothing about this. Furthermore having cash on hand that is only a small fraction of deposit obligations is standard practice for banking the world over.
You said it yourself, the media is heavily censored, yet you also think that the collective decision making of stock market actors with minimal knowledge of the bank's real conditions will somehow create a price that accurately reflects its financial situation?
I would suggest you understand Accounting 101 before jumping to a conclusion:
Price-to-book value (P/B) is the ratio of the market value of a company's shares (share price) over its
of equity. The book value of equity, in turn, is the value of a company's
expressed on the balance sheet.
The book value is defined as the difference between the book value of assets and the book value of .
I specifically said 'effectively insolvent' - meaning that if they were forced to sell their assets, the resulting value from a transaction is insufficient in satisfying the obligations. This insolvency is not necessarily triggered as the government can force participants not to recognize said losses.
As a specific example, Zunyi Road and Bridge (biggest LGFV in Zunyi) 'restructured' its loans with banks. Lenders were forced to take a 20 year extension on the 16bln of loans lent to Zunyi Road and Bridge, and the first 10 years of that extension is known as PIK - pay in kind - i.e the interest accrues but banks receive no cash interest, at 3% to 4.5%.
In another example, China Fortune Land restructured 5bln USD of its foreign liabilities - in this extension, lenders were forced to accept 8 year at 2.5% interest rate, paid in kind, due on the day of the extended maturity (I have friends who actually worked on this transaction who characterized the context of why this happened).
(Keep in mind, the bank/lenders can buy Government bonds at returns above that rate.)
The critical point here is that *IF* the assets of Zunyi Road and Bridge/China Fortune Land were productive assets - they would generate enough income to service the debt that they raised in building these assets. But clearly its not working as government regulators had to force bank lenders to take an extension on the loans at below market rates. Someone f'd up here, but the bank is forced to eat the loss.
When the banks are controlled by the Party and the Party asks you to jump, you ask how high. This is why the banking sector in China is trading the way they do.
Finally, investors in China do not rely on the media to inform themselves of what's actually happening behind the scenes. For example, a banking investor with a degree from PKU Guanghua will likely have a classmate who literally works at a provincial-level CBIRC - a WeChat conversation with said classmate tells you way more than you will ever know from the heavily censored press.
