Chinese bank would expand into U.S. and Russia

By Jamil Anderlini
Financial Times, London
Tuesday, June 12, 2007

http://www.ft.com/cms/s/3b314b7a-1913-11dc-a961-000b5df10621.html

HONG KONG -- Industrial and Commercial Bank of China, the country's largest lender, has applied for banking licences in the US and Russia as it seeks to expand outside its home market, the bank's chairman said on Tuesday.

"We have applied to regulatory authorities in the US, Russia, and other places to set up operations," Jiang Jianqing, ICBC's chairman, said after the bank's annual general meeting. "Global investors are all looking at the BRIC countries -- Brazil, Russia, India, and China -- and we are very interested in increasing our operations in these markets too."

The bank's global ambitions represent a sea-change from just four years ago, when the country's state-owned lenders were struggling with mountains of bad loans and poor management.

"Many of the country's banks were insolvent just a few years ago and it is only very recently that they have begun to clean up their act," said Charlene Chu, banking analyst at Fitch Ratings.

In recent years Beijing has bailed out the country's largest lenders to the tune of $430 billion (£218.4 billion) through direct equity injections and carving out bad loans.

The banks have also sold a further $70 billion worth of shares to foreign strategic investors and the public through initial public offerings in Shanghai and Hong Kong, and insist they have improved vastly their non-performing loan ratios, corporate governance, and risk management systems.

"We expect ICBC will be looking to do a lot more acquisitions because they have a lot of money and they definitely want to go global," said May Yan, China banking analyst at Moody's rating agency.

But the bank faces opposition to its plan to expand in the US because of concerns it does not meet American regulatory standards. The issue has been raised in the bilateral Strategic Economic Dialogue, with the US agreeing last month to consider Chinese bank applications to open US branches under "the principle of national treatment."

While foreign banks have been making significant inroads into China in recent years and are pushing hard for greater access, Chinese banks are largely excluded from foreign markets because of a history of poor risk management and corporate governance.

Bank of China, which has the largest overseas operations of any Chinese bank, agreed to pay a fine of $20 million to US and Chinese authorities in 2002 for alleged misconduct at one of its New York branches, which included charges of fraud and preferential treatment for customers with personal relationships with bank officials.

ICBC does not have plans to expand in the UK but has seen "very positive developments" in its London operations, Mr Jiang said.

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