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Potential as China streamlines banking system
Publication Date : 19-09-2012
China's fast-growing banking system is expected to undergo major consolidation in the next few years, according to Standard & Poor's (S&P).
Will there be further opportunities for Malaysian banks seeking a strong regional presence?
Out of the eight anchor banking groups, five have already established some presence in China.
Public Bank was among the first to do business in that part of the world through its Hong Kong-based JCG Finance.
Later, Public Bank bought Asia Commercial Bank, which was renamed Public Bank Hong Kong.
Maybank has branches in Beijing and Shanghai; it does a flourishing business especially through its Pudong branch in Shanghai.
Hong Leong Bank bought a stake in Bank of Chengdu, a move which has yielded good profit contribution.
CIMB Bank, another upcoming regional banking group, has also a large stake in Bank of Yingkou, besides an investment banking business through CIMB Securities Hong Kong.
Affin Bank is aspiring to launch Islamic banking in China through its shareholder Bank of East Asia.
In its China Credit Outlook Report dated September 10, S&P expects tougher times to test the pain threshold of the country's top 50 banks.
It believes that latent credit risks are about to surface as the Chinese economy cools, spurred by strong credit growth and inefficient credit allocation.
In what is termed as information risk of unlisted banks, S&P sees heightened risk for asset quality should the Chinese economy slow down further.
According to S&P, a credit downturn is already in the works with rising corporate delinquency, tightening net interest margins and liquidity management that is becoming increasingly strained.
The consolidation, if it comes, will not be a cheap exercise, judging by their size of assets.
The top bank, Industrial and Commercial Bank of China, has assets of 15.5 trillion yuan (US$2.45 trillion) while the 50th bank in terms of assets, Bank of Dongguan, has assets of 121.6 billion yuan, according to S&P.
China's banks are categorised into mega banks comprising the top five banks; 12 joint-stock commercial banks called national banks; 29 regional banks and foreign bank subsidiaries.
Malaysian banks that already have a foothold in China would be better prepared for any upcoming opportunities as they would already have an idea of the complex regulatory regime and banking system in the country.
Some of them like Hong Leong Bank would also have experience of working with a Chinese partner and possibly expanding the business together.
Working as a combined force, that would already set the background for further mergers and acquisitions.
Going into a country as vast and complex as China requires not only bold vision and strategy but also strong knowledge and experience of local conditions.
And those valuable lessons certainly cannot be gleaned overnight.
Yap Leng Kuen is an associate editor of The Star.