ANZ eyes stake in new lender
By Dai Yan and Luo Man (China Daily)
Updated: 2005-08-26 08:46

Australia & New Zealand Banking Group Ltd (ANZ) hopes to take a 20 per cent stake in Shanghai Country Commercial Bank in late 2006 after the bank formally started operating yesterday.

The city commercial bank officially transformed from Shanghai Rural Credit Co-operative yesterday, opening the door to accept foreign capital injection from ANZ.

Formerly the largest financial services co-operative in China, Shanghai Rural Credit Co-operative changed its name to Shanghai Country Commercial Bank after an opening ceremony yesterday.

The new commercial lender, headquartered in Shanghai's Pudong area, where many foreign banks are located, has 115.5 billion yuan (US$14.25 billion) in total assets, 52.6 billion yuan (US$6.49 billion) in outstanding loans and 93.8 billion yuan (US$11.57 billion) in deposits by the end of June, the company said in a statement.

The bank, which used to have some 200 separate entities under one umbrella before the structural change, will continue its focus on servicing farmers with its 331 outlets.

The bank has a registered capital of more than 3 billion yuan (US$370 million), and a capital adequacy ratio of 9.85 per cent. The China Banking Regulatory Commission requires its lenders have a capital adequacy ratio of 8 per cent, but the majority of Chinese banks fall short of the requirement. The banks must reach the line as of December 31 or their lending and geographic expansion will be restricted.

Some 50 per cent of the Shanghai Country shares are State-owned, though it may change after the possible foreign capital injection. But the bank officials declined to comment on the issue.

However, bank officials said earlier that their next focus will be to introduce a strong foreign partner.

Australia & New Zealand Banking Group Ltd (ANZ), the bank's possible foreign investor, said its reorganization into a bank is a great achievement.

Paul Edwards, spokesperson for ANZ, based in Melbourne, said: "It is an important milestone for the new bank and it creates a foundation for the bank to move forward."

The change means ANZ now has a single board of directors to talk to in the future, instead of more than 200 separate institutions that formed the former credit union.

"It gives us a single point of contact," he said.

"It would still be our hope to make an investment in late 2006 of up to a 20 per cent stake," he added.

ANZ has signed an agreement last year to offer technical advice to the Shanghai credit co-operative.

Many foreign banks are seeking to raise their share in local banks, or buy into new banks' stake. Citigroup is talking with Pudong Development Bank to increase its stake to 19.9 per cent and HSBC had also obtained a 19.9 per cent stake in the Bank of Communications, the nation's fifth-largest bank. Many small city commercial banks have also become targets. DEG a unit of German state-owned development bank and the Savings Bank Foundation for International Co-operation agreed to buy a 13.3-per-cent stake in China's Nanchong City Commercial Bank. Recent reports said Bank of Montreal and DEG are negotiating to buy stakes in China's Hefei City Commercial Bank.

"The Shanghai Country Commercial Bank will be a good bank to invest in given its wide coverage and extensive network," said William Lang, a banking analyst from Haitong Securities.

A partnership stake in the bank would give ANZ wider access to the Chinese market and a huge pool of savings.

But its weak performance will be a concern for foreign investors, he said.

The bank's makeover is part of a countrywide overhaul of credit co-operatives that operate mainly in rural areas and are currently holding some US$200 billion in non-performing loans.

Rural credit co-operatives currently are the only lenders in China's vast rural areas. Commercial banks closed their rural branches in the early 1990s.

Reform of rural co-operatives have been stepped up in recent years. The government also gives more power to these rural credit unions by providing more flexibility to set interest rates.

Some 43 banks across the country have been created from the rural credit unions. Nine are rural commercial banks, 34 are co-operative banks, and 13 are still undergoing approval.

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