Royal counts on experience and commodity financing

CANADA'S largest bank is relying on four decades of experience and strong financial products as it positions itself to improve exposure and strengthen its business in crucial areas of China's commercial banking sector.

The Royal Bank of Canada, the largest in Canada in terms of total assets, generates the bulk of its China business from commodity financing.

''We finance mostly essential commodities, like oil, copper and steel,'' Timothy P. Gibbs, the Royal's vice-president and general manager of China and Hong Kong, said.

''This business is sizeable, but we also have provided acquisition finance for major outward investments by Chinese companies.'' The Royal, which began its relationship in China with the Bank of China in 1954, recently celebrated the 40th anniversary of its links. Chairman and chief executive officer Allen R. Taylor visited Beijing to mark the occasion.

He was accompanied by a 39-member delegation during the four-day visit.

While trade finance remains the Royal's primary focus, the bank provides commercial loans, working capital loans, pre-export finance, import finance, remittances for corporate clients, foreign exchange and yuan transactions through its Shanghai branch, and foreign currency and time deposits, also at its Shanghai branch.

The bank provides treasury and investment banking services to China-based firms and also consultancy services.

It has a representative office in Beijing and a branch in Shanghai and has applied to open a branch in China's capital. If approved, it could become the first foreign bank branch in Beijing.

During the past year, the Royal co-arranged a US$100-million loan facility for China Non-ferrous Metals Import and Export Corporation and acted as a co-lead manager for a US$60-million loan for Beijing Jinghua Trust and Investment Corporation. Beijing Jinghua intends to use the facility for developing a cellular and cordless telephone network.

''We also provided finance for three Chinese airlines to buy aircraft,'' Mr Gibbs said, adding that trade finance was not the bank's only important area of business.

Most of the bank's clients are state corporations with experience in international trade.

Lending was in foreign currencies, Mr Gibbs said, adding that approval of the State Administration for Exchange Control had to be sought for loans.

Foreign banks are restricted from local currency business and are not allowed to open more than one branch in a city.

The Royal's trade finance business in Shanghai, in particular, is expected to expand as foreign investments improve.

''We want to increase our trade clients,'' Mr Gibbs said.

He said opportunities would grow as Canadian businesses strengthened their presence in various sectors of China.

Trade flows between Canada and China were encouraging, he said. Bilateral trade was largely based on wheat sales from Canada. Last year's total trade between the two nations was worth C$5 billion (HK$27.5 billion).

Other than its major activities, the bank has engaged in joint-venture financing.

''It's on a case-by-case basis. Financing is mostly for areas like machinery, working capital and term loans,'' Mr Gibbs said.