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As a small-cap bank stock with a market capitalisation of HK$23b, Bank of Gansu Co., Ltd.'s (HKG:2139) risk and profitability are largely determined by the underlying economic growth of the HK regions in which it operates. A bank's cash flow is directly impacted by economic growth as it is the main driver of deposit levels and demand for loans which it profits from. Post-GFC recovery brought about a new set of reforms, Basel III, which was created to improve regulation, supervision and risk management in the financial services industry. These reforms target banking regulations and intends to enhance financial institutions' ability to absorb shocks resulting from economic stress which could expose banks like Bank of Gansu to vulnerabilities. Unpredictable macro events such as political instability could weaken its financial position which is why it is important to understand how well the bank manages its risk levels. High liquidity and low leverage could position Bank of Gansu favourably at the face of macro headwinds. A way to measure this risk is to look at three leverage and liquidity metrics which I will take you through today.
Check out our latest analysis for Bank of Gansu
Why Does 2139's Leverage Matter?
What Is 2139's Level of Liquidity?
What is 2139's Liquidity Discrepancy?
Bank of Gansu ticks all the boxes for operational prudency in terms of liquidity and leverage. Investors often sideline these factors compared to other fundamentals, but they are equally important to consider as part of the investment thesis. High liquidity and low leverage places the bank in an ideal position to repay financial liabilities in case of adverse headwinds. We've only touched on operational risks for 2139 in this article. But as a stock investment, there are other fundamentals you need to understand. Below, I've compiled three important factors you should look at:
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