China’s banks face an uphill climb in going global

Chinese banks are still in the early stages of going global and need to do more to lure in investments, experts said at a bankers forum in Beijing on Monday.

“After China joined the World Trade Organization in 2001, Chinese banks gained much progress in their international expansion in terms of business modes diversification and operating overseas branches. Yet compared with foreign competitors, Chinese banks are still far behind,” said Ba Shusong, deputy director general at the Development Research Center of the State Council, at the sixth Annual China Bankers Forum 2012 in Beijing on Monday.

Statistics show that from the end of 2008 to 2011, foreign assets in China’s Big Four banks — the Industrial & Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd and Agricultural Bank of China Ltd — have risen from 2.41 trillion yuan ($380 billion) to 4.13 trillion yuan, said Ba, who called it a “huge figure”.

He said the Chinese government’s tight control over credit has allowed Chinese banks to explore abroad.

“We have witnessed many mergers and acquisitions outside China by (the Big Four) banks, with more overseas branches in recent years. There must be more in the future, since M& As are a much more effective way for them to expand their international business than building up branches from scratch,” Ba said.

In July, ICBC, the world’s largest lender by market value, took an 80-percent stake in the Bank of East Asia for $140 million. With the deal, ICBC gained the license to conduct retail banking in the United States.

Wang Yongli, vice-president of Bank of China, said progress from Chinese lenders in terms of asset quality, profitability and liquidity has helped the expansion of China’s banks into international markets.

One of the biggest challenges for Chinese banks going abroad is the unfamiliarity with laws in overseas markets, Wang said.

“There lie huge differences among different countries’ laws, taxation and financial regulations. Chinese banks have to deal with many unfamiliar regulations when going overseas. What’s more, some countries’ policies and regulations over foreign currencies are also in fluctuation,” Wang said.

BOC announced on July 23 that it will sell its Swiss unit to the Julius Baer Group Ltd, Switzerland’s largest private bank, after a four-year attempt to set up a private banking operation in the country.

Chinese banks are also confronted with challenges from fluctuating international markets.

Zhu Min, deputy managing director of the International Monetary Fund, said the global financial market has exerted a greater influence upon the domestic banking industry.

“Be it a global bank or a local State-owned bank, the increasing fluctuation and competition in the global market have become major challenges. Only if one has made full preparation to the constant changes from the global financial market that can one win in the global competition,” Zhu said.

Sushil Saluja, managing director of financial services at the Asia Pacific division of Accenture, said in the process of Chinese banks going international, they are also faced with challenges of changing consumer habits.

“Chinese banks have benefited from the huge domestic market and they are also predicted to enhance their international profiles in the future. But in the global arena, consumers’ needs have been changing a lot, which requires corresponding changes made by the banks,” Saluja said.

Experts said Hong Kong can be a favorable starting point for Chinese banks attempting to expand overseas.

“Relatively speaking, Chinese banks are more familiar with Hong Kong’s business operation environment, including its laws and regulations. Hong Kong also enjoys a less rigid banking regulatory system.

Ba suggested that the Big Four set up branches in Hong Kong to attain licenses and qualifications in order to run their asset management and securities divisions in an easier way, “since on the Chinese mainland, it is harder to get these licenses”.