ICBC eyes Huarong to diversify financial services portfolio

PUBLISHED : Tuesday, 19 June, 2007, 12:00am
UPDATED : Tuesday, 19 June, 2007, 12:00am

Industrial and Commercial Bank of China, the mainland's biggest lender, is in talks to buy Huarong Asset Management as the bank seeks to diversify its financial services portfolio amid government efforts to crimp borrowing.

ICBC and Huarong, one of the big four asset management companies set up to dispose of non-performing loans in the state banking system, are considering a co-operative agreement that may see ICBC take a majority stake or buy the firm outright, the Securities Journal reported yesterday.

The purchase would give ICBC the required licences and expertise to diversify into the financial leasing, securities, asset management and insurance businesses, according to an unnamed source cited by the report.

Neither ICBC nor Huarong would confirm or deny the report yesterday.

'Of course we work closely with ICBC because we deal with their non-performing loans. But I cannot say any more than that,' said a Huarong spokesperson. ICBC declined to comment.

Last week, ICBC chairman Jiang Jianqing outlined plans to expand beyond traditional lending activities, following the China Banking Regulatory Commission's recent decision to allow commercial lenders to diversify into 'non-banking services' such as financial leasing and insurance.

Yesterday's news that ICBC was one of eight banks punished by the banking regulator for lending money later illicitly used for stock market and property investments makes those diversification plans a priority.

However, analysts expressed doubts that the acquisition of Huarong, which was specifically established by the government in 1999 to take billions of dollars of bad debt off ICBC's books, was a wise move.

'Huarong was the historical entity that received the NPLs carved out of ICBC. Purchasing that entity would mean bringing back all of those bad assets into the bank,' said Fitch Ratings banking analyst Charlene Chu. 'I don't think that would be good either for the bank or for the development of the financial system.'

Liao Qiang of Standard & Poor's also saw limited benefits from the move.

'The only reason for ICBC to acquire non-banking financial institutions would be to increase long interest income and diversify its capital base,' Mr Liao said.

The regulators have allowed the big four asset management companies - China Cinda, China Orient, China Great Wall and Huarong - to branch out into a number of services previously off limits to the nation's lenders. Huarong has reportedly built up an impressive financial leasing business across the country.