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The Bank of Kyoto, the listed Kyoto-based retail bank, is looking to buy a stake in a Chinese bank to build a local presence, a company executive said.
“Although we would like to acquire a local Chinese bank, there are various legal hurdles that prevent us from doing so,” the executive said, hence Bank of Kyoto has instead decided to take a stake-holding.
Bank of Kyoto has no specific target in view, but it will likely be a fairly large, state-owned banking institution. The bank is interested in expanding its retail division into the giant China market where it sees many opportunities.
“We are a smaller player than other Japanese banks in China, such as Mizuho,” the executive said, adding that its comparatively small size would make it difficult for the bank to quickly build a local presence.
Xu Renmin, a Shanghai-based banking analyst, said that so far the front line commercial banks including the ”big four” state-owned commercial banks (Bank of China, Agricultural Bank of China, ICBC and Bank of Construction) and other nationwide commercial banks like the Bank of Communications, Merchant Bank, Minsheng Bank, Guangdong Development Bank and Shenzhen Development Bank have already tied up with foreign strategic investors or gone the IPO route. Second line commercial banks, however, like provincial commercial banks are still available to foreign investors, Xu said.
Some provincial commercial banks have already been approached by foreign banks; Chongqing Commercial Bank which recently announced the sale of a stake to Hong Kong-based Dah Sing Bank, for example. Some have even applied for an IPO and are expected to go public very soon, said Xu, citing the Nanjing Commercial Bank and Ningbo Commercial Bank. The two banks were widely reported by Chinese media to have submitted IPO applications to the China Securities Regulatory Commission (CSRC). Shanghai and Beijing Commercial Bank was also reported to be nearing an IPO, said Xu. “Apart from the aforementioned banks, there are some sound provincial-level commercial banks that have completed restructuring and might also gear up for an IPO. These banks, including the Bank of Jiangsu, China Zheshang Bank, and Changsha Commercial Bank, could be happy to sell a stake to a foreign commercial bank ahead of an IPO,” said Xu. The involvement of a foreign strategic investor would be beneficial for these banks in their application for IPO approvals, Xu explained.
According to Xu, most of these potential target banks are owned by local government and have full China Banking Regulatory Commission (CBRC) licenses to do business as commercial banks.
The potential targets have a strong client basis in their home province or municipality, Xu said, adding that he would recommend the Bank of Jiangsu and the China Zheshang Bank as prime targets for Kyoto because the two are based in Jiangsu and Zhejiang provinces, China’s richest provinces.
Under current Chinese regulations, a single foreign investor can hold up to a 19.9% stake in a Chinese commercial bank, while multiple foreign investors can jointly hold a maximum of 25%.
Dah Sing Bank successfully won approval to buy into the Chongqing Commercial Bank while Carlyle’s attempt to buy a stake was vetoed by the CBRC. The banking sector regulator CBRC prefers Chinese commercial banks to bring in a foreign bank rather than a PE fund as investor, a source close to CBRC said.
The Bank of Jiangsu, headquartered in the provincial capital of Nanjing, was established last year after approval by CBRC. It was formed in a merger of 10 city commercial banks from Wuxi, Suzhou, Nantong, Changzhou, Huaian, Xuzhou, Zhenjiang, Yangzhou, Yancheng and Lianyungang, all major cities in Jiangsu province.
China Zheshang Bank has 15 shareholders among which 13 are private shareholders. The bank is headquartered in Hangzhou, capital of Zhejiang province, and has registered capital of CNY 1.5bn (USD 196m).
Changsha Commercial Bank has 33 branches and 57 operational departments. It had total assets of CNY 36bn (USD 4.71bn) in 2005 and achieved operational profits of more than CNY 350m (USD 45.75m) in the same year.
The Bank of Kyoto reported revenues of JPY 127bn (USD 1bn) for the year ended 31 March 2007 and has a market capitalization of JPY 503bn.
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