Photographer: David Paul Morris/Bloomberg

Top Chinese Banks Have Long Way to Go With Asian Expansions

  • 9% of Asian firms use China banks for cash management: survey
  • Lenders made $16 billion of Asia purchases in past decade

After spending more than $16 billion on Asian acquisitions in the past decade, China’s banks still have a long way to go before their regional forays start to have a meaningful impact on earnings.

Only 9.1 percent of Asian companies outside China currently have working relationships with the nation’s top banks for cash management, according to a survey of 848 corporates by research firm East & Partners. Some 14.4 percent work with the Chinese lenders for trade finance, the survey showed. Given it was a first-time study, the firm had no comparable historical data.

“Definitely, it’s disappointing,” said Jonathan Chng, a senior analyst at East & Partners in Singapore. “They have spent so much money trying to penetrate the overseas market and to expand into non-Chinese corporate customers, but the result is still not very favorable to them.”

While China is already the biggest trading partner for Asian countries from India to Japan, mainland banks have struggled to compete with the wider range of products long-established rivals in the region such as HSBC Holdings Plc and Standard Chartered Plc offer to customers. The state-owned lenders’ overseas plans -- initially intended to support the global use of the yuan and the financing of Chinese infrastructure projects offshore -- have taken on greater significance as a weaker economy and rising soured debt hobbles profit growth at home.

Growing use of the yuan in international business seems to have some bearing on how Asian companies engage with Chinese banks. Some 28.7 percent of the firms in the East & Partners survey had a working relationship with the lenders for foreign exchange, the biggest connection to mainland banks. Just over 17 percent had banking relationships for investment services, rounding out the four business areas covered by the survey.

The more than $16 billion of Asian acquisitions by Chinese lenders in the past 10 years includes Industrial & Commercial Bank of China Ltd.’s purchase of Bank Halim Indonesia, which was completed in 2007, data compiled by Bloomberg show. More recently, China Construction Bank Corp. took a controlling stake in Indonesia’s PT Bank Windu Kentjana International late last year, while China Minsheng Banking Corp. won approval earlier this month to buy Quam Ltd., a Hong Kong-based brokerage and financial-services provider.

ICBC doesn’t provide a breakdown of its Asian profits. Its interim report showed that its overseas business accounted for 6.6 percent of operating income in the first half of 2015, up from 2.3 percent in 2006, before its Bank Halim acquisition.

Competitive Position

CCB, China’s second-largest bank by assets, is seeking to expand its network to about 40 countries from 24 and increase the overseas contribution of pretax profit to 5 percent by 2020, according to Chairman Wang Hongzhang. The overseas business only accounted for 1.79 percent of the firm’s pretax profit in the first half of 2015, up from 0.83 percent in 2006, exchange filings show.

“We are accelerating the pace to internationalize and to provide global financial services,” CCB’s Wang said in Hong Kong in October. “We are taking the opportunity of companies expanding overseas and the renminbi internationalization to strengthen our global competitive position.”

Operations outside mainland China contributed 3.2 percent of Agricultural Bank of China Ltd.’s total operating income in the first half of last year, and 23 percent of Bank of China Ltd.’s pretax income. Bank of China’s Hong Kong unit is the city’s top mortgage lender.

Press officials at ICBC and Bank of China declined to comment, while those at CCB and Agricultural Bank didn’t immediately respond to phone calls.

Concerns over deteriorating asset quality as the country’s economy slows had dragged shares of the four banks down by an average 15 percent in Hong Kong this year to Thursday. Bank of China fell 0.7 percent as of 1:39 p.m. local time on Friday, leading declines among the four lenders.

“In China, although the market is very big, there are a lot more opportunities overseas,” Chng said. Chinese banks “still have a lot of work to do in order to be on the same level as international banks.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE