China's global bank buying binge heats up
China's banks are likely acting on a new Beijing directive to expand globally, which could result in a multibillion-dollar buying spree over the next 2-3 years
As I said above, this kind of sudden rush to make overseas acquisitions is hardly ever coincidence when it comes to big state-run companies in China. Instead, I suspect that central officials in Beijing are quietly urging all of the country's big four lenders to expand overseas through this kind of new acquisition. Perhaps part of the reason is to divert attention from the banks' problems at home, where each is facing growing bad loans as the domestic economy slows. But Beijing may also be hoping to prepare these banks for increased competition in their highly protected home market, since most overseas markets are far more open and competitive than China's.
Whatever the reasons, I do suspect we'll see quite a few more overseas acquisitions by China's big four lenders in the next 2-3 years, with Southeast Asia, Latin America and BRICS countries as the most likely hunting grounds. CCB's acquisition target is in one such market, Brazil, where it is reportedly in late-stage talks to acquire Banco Industrial e Comercial SA (BicBanco) (Brazil: BICB4), which has a current market value of about $780 million (HK$6b). Rather than target a healthy bank, CCB seems to be setting its sights on a local lender that has been hamstrung by bad debt, according to the reports.
So, what do I think of the big four banks' overseas strategies so far? Based on what we've seen, I have to say I like ICBC's strategy the most, as it has formed several key partnerships with strong local players before moving into new markets. It has also targeted relatively healthy banks for its acquisitions. Bank of China's strategy of growing organically and through smaller purchases looks a bit too conservative and is unlikely to produce major new business anytime soon.
Among the two latecomers, AgBank's strategy looks the best to me as it focuses on a healthy bank in Hong Kong, which looks like a good stepping stone between China and the rest of the world. This new deal by CCB looks the least attractive, as BicBanco will not only take the Chinese lender far from its home market, but could also provide headaches due to its own bad loan problems.
Bottom line: China's banks are likely acting on a new Beijing directive to expand globally, which could result in a multibillion-dollar buying spree over the next 2-3 years.