China's major lenders broaden horizons

By the end of 2011, ABC reported foreign assets of 124.7 billion yuan, and profits of 887 million yuan from 10 foreign institutions. It got approval to set up institutions in Dubai, Vancouver and Hanoi last year, and set up a London subsidiary and a Seoul branch in February.

The Bank of Communications Co Ltd, meanwhile, already has 12 overseas operations contributing 7.2 percent of its total assets and 3.46 percent of profit in 2011. And both its foreign assets and profits increased by more than 38 percent from a year earlier.

Some experts cautioned, however, that Chinese banks should remain wary of the hard lessons learned by their Japanese counterparts as they headed to the global market in the 1980s and 1990s, when the world ranking of its banks slumped.

By 1991, six Japanese banks were ranked in the world's 10 largest commercial lenders by market value. And the top three were all Japanese lenders. But in 2011, none of the Japanese banks were on the top 10 list.

"They (the Chinese lenders) should try to avoid blind pursuit of scale, inefficient mergers and acquisitions and excessive expansion, to keep customer needs in mind constantly to enhance financial innovation and to manage risks prudentially," said Chan at KPMG Huazhen.

He added that lenders must be wary that their advantage of having a low capital cost base will disappear as interest rates liberalized.

Banking analyst May Yan, director of Barclays Capital Asia Ltd, said the lower profitability of foreign institutions compared with a China network always hinders banks' steps going forward.

"Lenders with a higher proportion of foreign business are usually less attractive to investors as their profit growth would be dragged down. BOC is a good example," she said.

But despite lower profitability, going abroad could well deliver some excellent opportunities, at some knockdown prices, Yan added.

In markets savaged by financial crisis, but now recovering, appealing takeover targets sit vulnerable to buyers with cash to invest: The timing could well be perfect for the Chinese banking giants to increase their footholds in various markets around Europe and elsewhere, she said.

wangxiaotian@chinadaily.com.cn