Saturday, November 20, 2004
StanChart to buy 20% in China bank
Justine Lau & Richard Mcgregor / Hong Kong/Shanghai
Standard Chartered has agreed to buy a nearly 20 per cent stake in Bohai Bank, a new private bank in northern China, in a bid to catch up with international rivals in the Chinese domestic market, according to people close to the deal.
The long-awaited deal comes after other foreign banks such as HSBC and Citigroup have stepped up their investments in China in a bid to tap the vast potential of its domestic market.
China allows foreign lenders to own up to 20 per cent of Chinese banks. Chartered has been criticised for its tardiness in making inroads into China, although a deal with such a little-known bank may not satisfy the critics.
The defence at Standard Chartered, however, is that Bohai does not suffer from the same overhang of bad loans, dubious lending patterns and old-fashioned management systems as the bigger banks, and will be able to invest quickly in new information technology.
"What's good about it is that we don't have to deal with all those legacy issues at the other banks," said one person familiar with the negotiations.
The person also said that StanChart was in discussions with another Chinese lender, but declined to identify which one. StanChart is widely believed to be in talks with China Everbright Bank. Standard Chartered declined to comment today.
Bohai Bank, to be headquartered in Tianjin, was established on the initiative of Dai Xianglong, the former central bank governor who is now mayor of the port city, near Beijing.
Although the commercial bank has been given a national licence, which has been rarely granted in recent years, the government wants the lender to focus on China's north-east, which has lagged the coast and southern China in economic development.
The licence was granted by the banking regulators on the condition that it find Chinese private investors and also a substantial foreign partner.
Alex Thursby, StanChart's head of Northeast Asia client relationships for wholesale banking who also declined to comment on the Bohai deal, said StanChart would focus on growing its corporate business in Greater China organically.
The UK bank estimated total wholesale banking business from China, Hong Kong and Taiwan to be about US$41bn annually, although only about US$13bn of those are profitable.
Mr Thursby said StanChart's share of the profitable wholesale banking business, which is expected to grow to US$17bn in 2007, will grow from "mid-single digit" to "the high-end of single digits."