Intense competition and government encouragement push weak commercial lenders to consolidate
China's second and third-tier banks are entering a period of consolidation as weaker players succumb to intense competition and the government encourages more mergers and acquisitions, ratings agency Standard & Poor's said yesterday.
'The consolidation is happening, especially at the city commercial bank level,' S&P analyst Ryan Tsang said. 'Banks are talking to each other and local and central governments are encouraging these banks to consolidate so they can survive the coming competition.'
In accordance with its World Trade Organisation accession agreement, China will allow foreign banks to conduct yuan business with individual domestic customers at the end of this year.
Consolidation is likely to come mostly from among the 117 third-tier city commercial banks, which operate in regional centres.
Some of these new entities could then apply to become joint stock commercial banks with nationwide operating licences and some of the existing second-tier national banks could acquire smaller players in cities they do not yet have a presence.
The 'Big Four' state-owned commercial banks and Hong Kong-listed Bank of Communications are unlikely to be involved in the consolidation trend, according to S&P's director of public finance ratings, Chew Ping, because they are already very conscious of costs and are actually shutting down branches rather than expanding their networks.