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May 25, 2011 at 06:26 AM
Chinese banks, in an effort to grow beyond the mainland's borders, have plowed large amounts of capital into acquisitions, new branches overseas and joint ventures. Although analysts are critical of their efforts, calling them pricey and poorly directed, banks see opportunity beckoning.
Reuters reported that banks are trying not just to expand their overseas presence, but also to cater to Chinese expatriates and provide yuan-based financial instruments through their buy-ins to non-Chinese companies and desk facilities inside other financial institutions. The ROE for their efforts, however, is considerably lower than expansion within the mainland would bring, according to experts.
Industrial and Commercial Bank of China (ICBC), state-controlled and the nation's largest bank, as well as the world's largest bank by market value, announced this week that it had been successful in gaining a license to open a branch in Mumbai. This is the first toehold in India for a large mainland bank. However, James Antos of Mizuho Securities was critical of ICBC's acquisitions, and said in the report, "It's a poor use of capital. They've spent $9.5 billion in the last five years buying banks with no market share. It's an awfully expensive way to add 3.5% to your profits."
ICBC's ROE within China stands at about 22%, according to Barclays Capital; its ex-continental activities only bring in about 14%. Charles-Everard de T'Serclaes, a J.P. Morgan executive director, was quoted in the report saying that China's banks "have a fantastic market that is huge, that's untapped, that's underpenetrated. They can go on creating value for their shareholders for the next 10-20 years without doing anything major."
ICBC spent $5.6 billion to acquire a 20% stake in Africa's largest bank, Standard Bank Group, in 2008; that allowed Standard as of last October to begin offering yuan accounts across the continent. In January ICBC spent another $140 million to scoop up the majority of Bank of East Asia's U.S. operations. It plans to open 5 more European branches and has put in applications to provide banking branches in Peru and Brazil, according to reports.
Bank of China boasts 711 branches operating outside of the mainland, opened a Cambodian branch earlier in May, and just last week launched a desk within the United Arab Emirates, where it does not have a full branch, at a local bank; it has similar desks in
