Chinese banks face uphill struggle for acceptance in global market

PUBLISHED : Friday, 19 February, 2016, 8:12pm
UPDATED : Friday, 19 February, 2016, 9:20pm

Despite actively engaging in cross-border merger and acquisition activities in recent years to fulfill their globalisation strategy, mainland Chinese banks are still lagging behind rivals on the world stage.

The recent raid of the Spanish headquarters of Industrial & Commercial Bank of China (ICBC), the mainland’s largest bank in terms of assets, has dealt a blow to the credibility of mainland Chinese banks, say analysts.

“Chinese banks still have low penetration rates with international corporates,” Jonthan Chng, a senior analyst at research and advisory firm East & Partners based in Singapore, told the South China Morning Post.

“One area where they are gaining traction is in foreign exchange, possibly due to fact that it involves trading based on their own home currency,” said Chng.

Only 9.1 per cent of Asian companies outside mainland China currently have working relationships with the nation’s top banks for cash management, according to a survey of 848 companies by East & Partners.

Some 14.4 per cent work with the Chinese lenders for trade finance, the survey showed. Given it was a first-time study, the firm had no comparable historical data.

Some 28.7 per cent of the firms in the survey had a working relationship with the lenders for foreign exchange, the biggest connection to mainland banks.

Bloomberg estimates Chinese banks spent more than US$16 billion on Asian acquisitions in the past decade.

East & Partners estimates mainland banks have invested US$55 billion in overseas markets..

They include China Construction Bank’s acquisition of Brazil’s BicBanco in 2013 and its acquisition of Jakarta-based retail commercial lender PT Bank Windu Kentjana International late last year. ICBC acquired Indonesia’s PT Bank Halim in 2007.

“Based on the research we regularly conduct on the top 1,000 revenue ranked Asia corporates, relationships between China corporates and Chinese banks are strong in areas such as trade finance, foreign exchange and cash management, however when it comes to investment services one out of four Chinese corporates will go with international banks,” said Chng.

Chng said the recent raid of the Spanish headquarters of ICBC would further harm its image.

“Counterparty risk is another reason why some international corporates are lukewarm,” he said.

Spanish authorities raided the Spanish headquarters of ICBC on Wednesday and detained five directors, under the orders of a judge investigating the bank over alleged money laundering.

Jack Chan, EY Greater China Financial Services Managing Partner, said China’s banks were less experienced on the global market.

“The ‘go global’ call from Beijing started only a few years ago and even some of the biggest Chinese banks had a very limited footprint on the offshore market before that,” he said.

“It is very challenging for Chinese banks to adapt to local law and compliance requirements,” he added.

Iris Pang, an economist at Natixis SA in Hong Kong, said profit was usually “not the priority” for Chinese banks, and as a result, they are not pro-active in develop foreign client relationships.

“A mainland bank usually has a strategic purpose on the overseas markets, for example, to provide credit, or trade finance for ‘One Belt One Road’ projects. In Hong Kong, the mainland banks’ strategic purpose is to increase market share, rather than maximising profits,” she said.