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Going out: China's banks look outbound for growth 

Are you ready for the internationalization of China's banks?
vantage: the view from transaction and restructuring

 

After years of focusing on the domestic market, China's banks are now starting to look outward. Based on recent actions, we believe that we are in the midst of a change that will bring about a series of major intercontinental deals over the next three to five years.

Supporting the 'going global' strategy

International observers will have already noted that China's banks have been eyeing overseas markets. Not surprisingly, activity has followed trade flows; it is no coincidence that ICBC holds around 20 percent of South Africa's Standard Bank; or that China Construction Bank recently closed a deal for a 72 percent stake in Brazil's Banco Industrial e Comercial SA.

 

But China's banks have also started to become increasingly aware of their dependence on domestic markets. The specter of slowing growth has forced many bank CEOs – the big four in particular – to look to other geographies as a means of diversification.

Capability and capacity

However, China's banks also recognize that – if they are to succeed globally – they will need to quickly ramp up their capabilities and sophistication, particularly in global functions within wholesale and corporate banking. As a result, we believe that we will see significant interest from China's banks in overseas assets that deliver new or critical capabilities.

 

ICBC's plans to purchase 60 percent stake in Standard Bank's global markets business in London is a case in point. On the one hand, ICBC gains an important foothold into the London market which will become increasingly valuable as China's government moves towards a more convertible domestic currency. But it will also allow ICBC to transfer many of the new capabilities gained from the deal back into the domestic market and to near-shore centers such as Hong Kong.

The integration challenge

Well-capitalized and fairly stable, China's banks are certainly not strapped for deal-making cash. What's more, China's government has been actively working to pull down some of the regulatory and policy barriers that had previously made overseas expansion difficult.

 

Recent experience would suggest, however, that China's banks may face a harder battle than most when competing for foreign banking assets and, until perceptions change, the purchase of a global multinational bank by a Chinese bank will likely be out of the question.

 

However, likely the biggest challenge that China's banks will face will not be in finding attractive deals, but rather in properly integrating their acquisitions post-merger. Retaining staff and integrating practices will be a key concern, while integrating operations and systems will also pose new challenges.

A surging trend

Based on our experience, we believe that China's banks are now moving from the scouting phase into the execution phase of their 'going global' strategy. If we are right, we can expect to see a significant uptick in activity, particularly in high growth markets that trade with China and in mid-sized EU and American operations with more sophisticated global products or services.

 

Indeed, we believe that – once China's banks start to gain more experience and become more adept at adapting foreign practices into their domestic operations – we will start to see China's banks join the ranks of the true banking multinationals.

 

Honson To, Rupert Chamberlain and Louis Ng, KPMG China

 

 

* The opinions expressed in this article are those of the authors and do not constitute professional advice.

 

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Global growth of Top 5 Chinese banks

Country ICBC CCB BOC ABC BOCOM
  07 13 07 13 07 13 07 13 07 13
Angola                  

Argentina

                 
Australia  
Bahrain                
Belgium                  
Brazil            
Cambodia                
Canada            
Cayman Islands                
France              
Germany
Holand                
Hong Kong
Hungary                
India                  
Indonesia            
Ireland                  
Italy              
Japan
Kazakhstan              
Kenya                  
Kuwait                  
Laos                  
Luxembourg          
Macau    
Malaysia              
Mongolia                  
Myanmar                  
New Zealand                  
Pakistan                  
Panama                
Peru                  
Philippines                
Poland                
Portugal                  
Qatar                  
Russia            
Saudi Arabia                  
Singapore
South Africa          
South Korea
Spain                  
Sweden                  
Taiwan            
Thailand              
Turkey                  
UAE            
UK
USA
Vietnam        
Zambia                

 

Source: Industrial & Commercial Bank of China (ICBC) annual reports, 2007-2013
Source: China Construction Bank (CCB) annual reports, 2007-2013
Source: Bank of China (BOC) annual reports, 2007-2013
Source: Agricultural Bank of China (ABC) annual reports, 2007-2013
Source: Bank of Communications (BOCOM) annual reports, 2007-2013

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