Bank of China's headquarters in Beijing. The company is to open at least 15 rural banks in Shandong province.[Photo/China Daily]

More than 20 village banks to be established by year-end

QIANJIANG, Hubei - Bank of China Ltd (BOC), the country's fourth-largest commercial lender by market value, is planning to accelerate expansion in the rural market.

BOC Fullerton Community Bank (BFCB), a joint venture between BOC and Fullerton Financial Holdings (Fullerton), a subsidiary of Singapore's sovereign wealth fund Temasek Holding Co, is gearing up to establish 20 to 30 rural banks before the end of 2011, senior executives of BOC and Fullerton said.

Dang Pengjun, deputy head of BOC's Strategic Development Department, said the initial performance of the existing rural banks has far exceeded previous expectations and the two sides are very confident of further large-scale expansion.

He made the remarks on Aug 12 after the opening of the 10th rural bank in Qianjiang county of Hubei province. BOC is planning to establish at least 15 rural banks in Shandong province by the end of August.

The rural banks are fully independent banks but operate under the BFCB name.

BOC is also planning to establish a holding company for the joint venture to better manage rural banking business development.

Since the March opening of the first BOC Fullerton Community Bank in Qichun county of Hubei, a total of 10 banks have been established in rural areas of Hubei province and Shandong province. The banks have a total of 6,000 clients, more than 250 million yuan ($39 million) in deposits and at least 100 million yuan in outstanding loans.

The loans were used to support the development of small and medium-sized enterprises (SMEs), small business owners, individuals and farmers.

"China's rural communities are developing into larger towns, which presents huge growth potential and business opportunities," Dang said, adding that expanding in rural areas helps BOC to increase the size of its client base.

"The joint venture will become the biggest player in the rural banking market by the end of this year by combining the BOC's extensive domestic network with Fullerton's unique business model, which focuses on SMEs, self-employed individuals and farmers," said Xu Jipian, chief finance officer of BFCB.

Albert Cheung, regional head of BFCB's western and central China operations and consumer business, said BOC helps rural banks with transaction settlement and BFCB recommends larger clients to BOC, since its banks have a maximum loan limit of 4 million yuan.

Xu said the bank expected each new rural bank to achieve profitability after one and a half years. However, that target can be reached in one year, he said.

Wang Yongjun, head of the first BOC Fullerton Community Bank in Qichun, said the bank will post a profit in August - 13 months earlier than expected.

Tightening monetary policies have also helped the development of rural banking, Xu said. Since larger banks are lending less, clients are now turning to smaller banks such as BFCB, said Xu.

Wang's bank has already provided nearly 25.4 million yuan in loans from March to August at interest rates on average 40 percent higher than the benchmark lending rates.

China plans to build 2,000 village banks to compete with existing rural credit cooperatives and encourage private business owners to invest in rural financial institutions, said Liu Mingkang, head of China's banking regulator, in 2009.

Dang said that BOC aims to establish 400 rural banks nationwide in the next five years.

A decade ago, BOC was highly dependent on revenue from its foreign operations before it began exploring the domestic market.

In 2000, BOC's overseas branches contributed 41 percent of the bank's revenue and 99.8 percent of its total net profit. By the end of 2010, the lender's overseas revenue accounted for less than 20 percent of total revenue, and overseas net profit contributed less than 22 percent.

BOC President Li Lihui said in July that a well-balanced ratio for its business should be 80 percent domestic and 20 percent overseas, considering the size and growth potential of the Chinese market.

In 2010, BOC reported a net profit of 109.7 billion yuan, a year-on-year increase of 28.52 percent.