Bank of Communications chairman outlines blueprint to expand global ambitions

China’s 5th largest bank’s net profits from overseas business rose 26.26pc last year, as a strategic partnership with HSBC helps grow its international reach

PUBLISHED : Friday, 07 October, 2016, 4:25pm
UPDATED : Friday, 07 October, 2016, 10:58pm

For the past decade, China’s big five state-owned banks have been part of the wave of Chinese corporates looking abroad, both providing services to help other companies with their internationalisation process, while also using its wider spread of clients to facilitate its own overseas growth.

The bank provides a range of services, but they are becoming particularly significant when it comes to mergers and acquisitions.

In the first three quarters of the year, six Chinese banks were ranked in the top 20 banks M&A advisory fee table for Asia, according to Mergermarket data. In comparison, none of the six reached this level last year.

Unsurprisingly Chinese banks are rising in significance in global mergers and acquisitions.

Chinese companies were the most acquisitive of any nationality in the world in the first nine months, and for cultural and even patriotic reasons, many prefer to work with Chinese banks.

Foreign assets held by Chinese banks are now close to ten trillion yuan, and the banks overseas are playing increasingly important roles in the internationalisation of the yuan by acting as clearers for transactions in many jurisdictions. Nonetheless, there’s still a long way to go.

According to the Chinese Bank Internationalisation Index, developed by PwC and Renmin University, while the big international banks generate around 60 per cent of their operating profits on average from outside their home markets, China’s big five are currently bringing in an average of just 8 per cent internationally.

Niu Ximing, the chairman of Bank of Communications, China’s fifth largest bank which is dual-listed in Shanghai and Hong Kong, explains to South China Morning Post what’s behind its “going global” strategy.

The Shanghai-headquartered lender, known as BoCom, initiated its global ambitions in 2008 and has accelerated the programme in recent years.

What have been BoCom’s most recent steps in its “going global” strategy?

As Chinese companies spearhead into overseas markets, we are seeing rapid growth in our international business. Last year, we opened a branch in Brisbane, Australia and a subsidiary in Luxembourg. We have also gained approval from the China Banking Regulatory Commission to open branches in London, Toronto and Luxembourg and recently obtained the go-ahead from local regulators in Rome and Paris to open branches there.

Elsewhere, we have acquired an 80 per cent stake in Brazilian bank BBM, and have seen growing levels of business of our yuan clearing bank in Seoul. We are speeding up our international business.

Besides opening branches and making M&As, what other channels do you see for the bank to expand its overseas landscape?

Opening other lines of business is another option. For instance, we opened a financial markets and transactional banking centre in Hong Kong in March 2015, and it already made a profit of HK$90 million last year. We expect profit to double this year. So we are pondering opening more such lines elsewhere. That will be a key part of our overseas expansion plan.

What figures best illustrate the growth of your overseas business?

By the end of 2015, our overseas assets rose 16.99 per cent and accounted for 12.7 per cent of our total assets. Net profits from its overseas business rose 26.26 per cent year on year and contributed to 10.62 per cent of total profits, up 2.12 percentage points from the year before.

Our international settlement total rose 5.57 per cent to nearly 4 trillion yuan, and cross-border yuan settlement rose 46.51 per cent year-on-year to 1.6 trillion yuan.

What are your future plans and targets?

“Going global” will remain a key part of our development. We plan to press ahead with our current business model of “organic growth+M&A+cooperation with HSBC” to beef up our international operations. We also aim to open more overseas outlets in major global financial hubs and countries and regions with close trading and economic ties with China.

What’s the ultimate driver of BoCom’s “going global” ambition?

Serving the real economy is the core task of the financial industry. The expansion overseas by financial institutions should work in tandem with Corporate China’s forays internationally. Better serving our clients and supporting the real economy will always be our ultimate driver.

What are your main clients overseas and what gives the bank its competitive edge?

We target both cross-border and local clients to consolidate our clients base. We aim to build up big overseas branches with assets mounting to more than US$10 ten billion with profits topping US$100 million.

Our strategic partnership with HSBC is our unique advantage. We will team up together to grow your global financial services.

How will you learn from HSBC, and other overseas counterparts, to reduce risk while going abroad?

HSBC is also our second largest shareholder, and we have cooperated together for a decade. We can learn from HSBC on improving efficiency and on better coping with compliance risks.

Chinese financial institutions expanding overseas face huge compliance risks. To be frank, we are unfamiliar with the area, but if we don’t do well on this, a seemingly successful overseas business can be tripped up by itself.

So we are very keen on compliance issues and nurturing related professionals while going global.

How do you plan to grab the likely opportunities from China’s One Belt, One Road initiative?

We have the capability to handle infrastructure related financing along the Belt and Road trading routes. We have already set up more than 50 outlets in 15 regions and countries along them, which will help further build our international strength.

In the short term, we will tighten our cooperation with local governments that have ambitions in riding the waves created by the initiative, accelerate cooperating with the Asian Infrastructure Investment Bank and Silk Road Fund, and deepen our relationship with companies that have the capability of expanding abroad. We closely watch policy updates related to the initiative and grab what business opportunities arise. We are also planning to set up a decision-making mechanism designated for Belt and Road financial needs.

Long term, we aim to be a major bank serving the economic initiative, with an expanded network and diversified services including settlement, financing, guarantee, risks manage that covers the full process of a transaction.