Wolves or better halves?
(CHANG TIANLE)
12/21/2001
IT is said that foreign banks are wolves that will devour domestic players now that China has entered the World Trade Organization - or at least enjoy a much larger market share. But it seems that during the five-year buffering period, foreign banks prefer marriage to cruel competition. Rumours are spreading that several foreign banks are in talks to buy stakes in domestic banks. This is thought to involve Hong Kong & Shanghai Banking Corp (HSBC) with Bank of Shanghai and Citibank and Deutsche Bank with Bank of Communications. Insiders say Pudong Development Bank is also on the hotlist. Only HSBC has confirmed the rumour, saying that it is in discussions which may lead to a minority investment in Bank of Shanghai. "The investment is subject to agreement of terms and conditions and receipt of various regulatory approvals. A further statement will be issued if and when it is appropriate," HSBC said. First trial According to a source with People's Bank of China, HSBC and Bank of Shanghai have applied for an 8 per cent stake transfer, a deal involving 520 million yuan (US$63 million), which will make HSBC the first foreign commercial bank to own a stake in a Chinese lender. The Bank of Shanghai was established in the Chinese mainland in 1995 and had assets of $11.6 billion as of December 31, 2000, 196 branches throughout Shanghai and 4,500 staff. It offers personal and corporate banking services as well as payment, trade finance and treasury products. The Bank of Shanghai was established through a merger of urban credit co-operatives in the city. Its shareholders include the Shanghai Municipal Government, 13 district governments, Shanghai-based State-owned enterprises, small- and medium-sized enterprises and some individuals. Analysts say the diversified shareholder structure is most appealing to foreign banks as it costs them less to take the controlling position and also makes corporate governance easier. Before that, the Shanghai-based Bank of Communications, the nation's largest shareholding commercial bank, said it was planning to sell 15 per cent of its assets to two to three foreign financial giants to strengthen its position in the market. But Citigroup Chairman Sanford Weill, the most committed suitor for Bank of Communications, refused to comment on the issue when he visited Shanghai early this month. Analysts believe the banks are unwilling to reveal details regarding the negotiations before they receive approval from government regulators. Win-win liaison Experts say the alliance could result in a "win-win" situation for all related parties. Such co-operation not only will increase local banks' capital adequacy ratio but also provide them with much expertise in a number of areas, including management, technology and risk control. Earlier this year, a call for shareholding reforms and an invitation for foreign funds to enter domestic financial enterprises was made in the 10th Five-Year Plan (2001-05), which could become a stimulus for co-operation between domestic and foreign financial enterprises. It is likely to speed up with China's entry into the World Trade Organization as multinationals strive to gain a better position for the follow-up competition in the market, in particular in Shanghai, which is viewed by many multinationals as their first stop in tapping the China market. Foreign banks are currently not allowed to operate renminbi business with domestic enterprises and individuals. They will still have to wait another five years before they can enter the lucrative domestic retail banking business.
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