Chinese banks aren’t just buying foreign competitors, they’re trying to out-compete them

October 30, 2013
October 30, 2013

China Construction Bank is close to a deal to buy Brazil’s Banco Industrial & Comercial for more than $700 million, Bloomberg reported today, which would give the Chinese lender a cherished banking license in Brazil, where many of its Chinese customers are already doing business as trade between the countries surges.

It’s tempting to view the looming deal as evidence of a long-expected shopping spree abroad by China’s banks. For years, analysts and bankers themselves have predicted that China’s massive state-owned lenders will grow their footprint overseas by snapping up foreign counterparts in order to diversify their own debt-laden domestic portfolios and follow their Chinese customers overseas to promising new markets.

Chinese banks “can pay European valuations for emerging market operations,” one unnamed banker gleefully told the Financial Times earlier this year.

Other deals are percolating: On October 25, the finance arm of the Guangzhou government, Yue Xiu Group, offered $1.5 billion for 75% of Hong Kong’s Chong Hing bank, a deal that would bring Yue Xiu a healthy branch network and bigger deposit base. Agricultural Bank of China is one of several weighing a bid for Hong Kong’s Wing Hing Bank, according to Reuters, a deal that could be worth about $4.5 billion.

But despite the huge amount of bank assets still available at firesale prices, a full-on deal frenzy may never materialize. After Chinese regulators fired a warning shot in 2009, saying they would be scrutinizing overseas bank deals more closely, Chinese bank buyers have been eyed warily. Bank of China’s attempt to buy RBS’s aviation business, for example, was thwarted when the seller worried the Chinese bank might not get the deal done; widely reported discussions between Industrial Bank of China and the UK’s Standard Bank Group have yet to bear fruit.

Undeterred, Chinese banks have been investing in local markets the old fashioned way: by building branches, regional offices, and client relationships. They’re moving from “serving Chinese clients” to “building a strong local market presence” with local customers, Deloitte & Touche wrote in recent review of the industry.

In Australia, state-run Bank of China and Industrial Commercial Bank of China are “overtaking Western giants” like JP Morgan and Royal Bank of Scotland to lend to Australian companies, the Sydney Morning Herald reported this month. Chinese banks provided $1.6 billion in syndicated loans in the first half of the year, double what they did last year. Meanwhile in the US, Bank of China has expanded into real estate lending and commercial mortgage backed securities, while in Europe, ICBC has expanded its branch network.

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