BEIJING -- China's state-run lender giant - Bank of China (BOC) is now moving its headquarters in the United States into a 137-meter-high skyscraper, located in Manhattan, New York, that it bought at a price of nearly 600 million US dollars in 2014.
Against the ailing global economy, BOC's removal seems fairly "eye-catching", hinting not only its business growth in the United States but also Chinese banks' rapid expansion in the global market.
In recent years, Chinese lenders generally put internationalization into their basket of strategies for development, resulting evidently in fast progression of their global businesses. Behind these attempts are their needs to grow overseas lending business when China is implementing "two-way opening-up" and the Belt and Road Initiative and to offset losses caused by narrowing down net interest margin and rising non-performing loans in domestic market.
Statistics tell that Industrial and Commercial Bank of China (ICBC), one of China's four state-run bank giants and the world's biggest lender by market value, saw its net profit wiggle up 0.7 percent from a year earlier in the first quarter of 2016, with data of its state-run peers including China Construction Bank (CCB), Agricultural Bank of China (ABC) and BOC up 1.41 percent, 0.46 percent and 1.81 percent respectively, even after they generally lowered their provision coverage.
However, Chinese lenders widely recorded 2-digit profit growths in their overseas businesses, speaking for why they have speeded up overseas business layout recent years. At the end of June, 2015, CCB's affiliates abroad pocketed 13.508 billion yuan of interest incomes, up 42 percent from a year ago. ICBC earned 14.37 billion yuan of interest incomes from its businesses abroad, up 17 percent year on year. BOC's business units in foreign market achieved 4.652 billion US dollars of before-tax profit, accounting for as high as 22.91 percent of BOC's before-tax profit.
In spite of these, Chinese banks' international moves still lagged behind their foreign peers. By the end of June, 2015, businesses abroad of China's five large banks took up on the whole less than 10 percent of their overall businesses, with the figure for BOC, a forerunner in internationalization in China, at merely 30 percent.
What's worse, Chinese banks' overseas expansion relies heavily on Chinese businesses' international expansion and investment as they traditionally provide trade financing and loans for businesses and participate sometimes in equity purchasing and M&A activities.
Regarding geological distribution, Chinese banks merely operate business units in over 50 foreign countries, leaving alone their insufficient layout in Belt and Road-related regions, and emerging economies.
As Anbound Consulting's (Anbound) research team holds, huge infrastructure demand in the Belt and Road-related countries means more than a great amount of mid- and long-term financing demand for Chinese banks. It also points to a significant development opportunity for Chinese lenders and will sharply improve overseas reliance on use of the Chinese currency - Renminbi (RMB).
Given Chinese banks' apparent advantages in RMB-denominated product design and RMB clearing and settlement services, they are advised to seize the chance to accumulate overseas commercial channels and resources, actively expand their business networks in Belt and Road-related countries and support key sectors such as transportation, and nuclear power with financial services.
At a tenor when profit growth eases at home, Chinese lenders shall accelerate their paces in scaling up business layout in these Belt and Road-related countries and regions. As a matter of fact, some Chinese banks have been increasing their businesses in these countries and regions. For instance, ICBC bought a majority stake in Turkish lender - Tekstilbank in 2015; CCB finalized its deal to purchase over 70 percent stake in Banco Industrial & Commercial (BICBanco) in August 2014; and Bank of Communications also acquired a controlling stake in Brazil's BBM. Apart from these, ICBC offered as much as 42.7 billion US dollars of loans for 170 "going out" projects in 2015.
Of the same importance is their paying more attention to the Europe and US markets than ever, according to Anbound, which deems that these developed regions, mostly renowned world financial centers, have abundant financial resources, financial management system, financial tools, information of varied categories, and financial networks. On back of these, Chinese lenders shall widen their business development to sharpen their competitiveness in overseas market.
Take the US market where Chinese banks' development is more typical as an example. Since the 2008 global economic crisis, some foreign-funded banks facing stricter supervision and regulation thus excessively high cost there decided to leave. According to statistics of US Fed, assets of foreign-funded banks in the US declined seven percent from 2014 in 2015. Chinese lenders, on the contrary, kept raising their assets in the US since 2010. By the end of 2015, Chinese banks held around 130 billion US dollars assets in total, much higher than the 17.3 billion US dollars in 2010.
In 2014, BOC owned over 50 billion US dollars of assets in the US and 78 billion US dollars of assets in 2015. In addition to conducting its core lending business, BOC also strives to compete with other banks in more profitable areas, including corporate financing, commodity hedging and commercial real estate mortgage. So far, such American blue-chip firms as Visa Inc., Diamond Offshore Drilling Inc. and Chicago Mercantile Exchange are all clients of BOC. For BOC, its business in the US is one of its most profitable business units.
Speaking of the demerits, however, Chinese banks' growing global presence requires better compliance management in developed countries as their regulatory systems are more complicated.
As industry insiders say, regulatory systems applied nationwide in the US and in its states differ and different types of business are administrated by different supervisors and regulators. Chinese banks' business units in the US are supervised and regulated by 7-to-8 regulators, with their retail banking business under regulation of OCC and FDIC, and securities brokerage under regulation of SEC and FINRA. In addition to these, anti-money laundering is widely focused upon by foreign regulators.
In a word, compliance is a priority task for Chinese banks and they first need to optimize system construction and reserve talents so as to shore up their overseas business.
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