ICBC’s push into central, eastern Europe elicits cautious response from China banking regulator official

Defying the trend of Western banks’ downsizing branches and capital in the central and eastern European markets, the Industrial & Commercial Bank of China this week orchestrated two significant moves into the region as part of Beijing’s call for domestic banks to get more involved in project financing in countries under its “One Belt, One Road” plan.

The push into central and eastern Europe comes as China’s largest state-owned bank undergoes a succession process in its top ranks with the resignation of long-serving chairman Jiang Jianqing, who has reached retirement age. He will be officially replaced by ICBC’s current president Yi Huiman.

But even as these latest overtures into the European market are completely in line with state-policy, the manner in which ICBC is orchestrating the moves may be raising concern from the nation’s banking regulator over potential risks to the lender’s balance sheet, which is already being challenged by mounting bad loans and slowing revenue growth in the domestic market.

Christopher Wang, a deputy director at the China Banking Regulatory Commission, wrote in a posting on the professional social media site LinkedIn: “ICBC is bold enough to wade into something no others dare to go. Be cautious.”

He was referring to a newly announced €130 million (HK$1.1 billion) bilateral loan agreement ICBC has made with Poland’s mBank through its new Warsaw branch, the designated headquarters for expansion into central and eastern Europe. The loan was the Chinese bank’s first move into that market. On Wednesday, ICBC also announced it had setup an investment subsidiary with a €1 billion budget to invest in infrastructure projects in the region.

The bank’s move defies the retrenchment trend among global European banks. On Tuesday, John Cryan, chief executive of Deutsche Bank, the No. 4 European bank, told analysts it has closed the accounts of 750,000 customers, shut down branches in Poland and is undertaking closer scrutiny of returns against the risks and capital charges involved in its risk-weighted assets.

Marco Yau, equity analyst at CLSA in Hong Kong, said ICBC’s expansion plans were part of state-sanctioned policy. “As China’s own economy slows down, the bank needs to find new growth drivers, and these countries may just offer the growth it is looking for,” Yau said. “To be fair, it would have faced even greater challenge in expanding into developed markets.