Bank of China

Are China's Big Four banks primed for an offshore plunge?

Rumours are mounting that China's major lenders could be ready to snap up European rivals, moves Beijing would probably approve

PUBLISHED : Tuesday, 16 October, 2012, 12:00am
UPDATED : Tuesday, 16 October, 2012, 4:15am

As the euro-zone debt crisis deepens, market speculation is growing quickly about whether China's capital-rich Big Four banks will take the rare chance to acquire some European rivals, even though the country's major lenders have so far remained hesitant and cautious.

Some financial industry analysts say Industrial and Commercial Bank of China (ICBC) and Bank of China (BOC) are the most likely of China's major banks to make acquisition forays overseas.

If they did, the acquisitions could easily win support from Beijing, which has been pushing its so-called go out policy to encourage its major state-owned enterprises to expand outside the country in the past few years, analysts said.

"The scale of the bank [ICBC] is big enough and it is the type of [Chinese] bank that I think will receive government support when it 'goes out'," Shanghai-based Phillip Securities analyst Chen Xingyu said.

Wang Aochao, an analyst with UOB Kay Hian, agreed.

"ICBC is experienced in overseas acquisitions," he said. For example, ICBC bought a 20 per cent stake in South Africa's Standard Bank for about US$5.5 billion in early 2008.

Besides ICBC, now the world's biggest bank by market value, and BOC, the Big Four mainland banks also include China Construction Bank (CCB), the nation's No1 property lender, and Agricultural Bank of China.

They are all headquartered in Beijing, tightly controlled by the government and listed on both the Shanghai and Hong Kong stock markets.

Last month, Britain's Financial Times quoted CCB chairman Wang Hongzhang as saying that the bank could spend as much as US$15 billion to acquire a major stake in a European bank or even for a buyout deal.

The story generated a lot of attention in the global financial community as some investors considered loss-making, British government-controlled Royal Bank of Scotland, and Germany's Commerzbank, as potential deal targets for CCB.

If successful, either deal would likely be China's largest banking acquisition abroad. But a few days after the story was published, CCB denied it was interested in pursuing such an option, citing "misunderstanding" as a reason for the Financial Times' story.

Some bankers maintain that CCB and other Chinese banks did have the potential and interest to buy offshore but CCB's reaction to the Financial Times' story indicated they didn't want to make their ambitious too obvious, a move that could push the bidding price higher.

Banking analysts at Barclays said in a recent research note that the Big Four banks "have sufficient liquidity to make acquisitions".

However, the report also warned that the lenders could face regulatory hurdles, in particular in seeking to buy multinational European banks.

Part of the reason why China's banks are keen to expand outside the country is that the Chinese economy is showing signs of a slowdown and the lenders want to diversify their profit streams and grab a bigger market share.

Among the Big Four, BOC, China's top foreign exchange bank, is considered the front runner to make an overseas acquisition because "BOC is more integrated to the global market", Chen said.

"Retail banking is one of the businesses that Chinese banks should look into when expanding overseas," he said, given that more Chinese citizens were travelling or living abroad.