US 'golden opportunity' for Chinese banks

A China Construction Bank Corp branch office in Nanjing. The lender is among the banks with the five largest annual profits in the world, according to the UK financial magazine The Banker. [Photo/China Daily]

Chinese institutions, as measured by The Banker, gained a bigger slice of global bank profits after the economic downturn.

They now generate nearly 30 percent of those profits, compared with just 4 percent in 2007, according to a worldwide survey of 1,000 banks the magazine released in early July.

China's Big Four banks - ICBC, China Construction Bank Corp, Bank of China Ltd and Agricultural Bank of China Ltd - were among the banks with the five largest annual profits on the Top 1,000 World Banks 2012, a list compiled by The Banker. ICBC led the pack.

The authors of the survey wrote that China, the world's second-biggest economy, is entering a period when its banking system will attain dominance.

Among world banks, ICBC was ranked third by The Banker in a list of banks with the largest amounts of Tier 1 capital. That was the highest spot ever accorded to a Chinese bank.

Tier 1 capital is a measure of a bank's financial soundness and ability to withstand unexpected losses. It consists of capital held in common stock - equity that can't be redeemed at the option of shareholders - as well as retained earnings, or reserves.

"One big factor of their huge profits is the domestic situation in China," Caplen said.

"The economy was growing at 8 to 9 percent a year. Property prices were rising, and companies were expanding."

But the banks' business outside China is still quite small compared with what they do inside the country. Some experts said it remains to be seen how greatly Chinese banks will become "internationalized".

"It's inevitable for Chinese banks to go overseas," said Chew. "But it will take quite some time for them to be truly internationalized."

While Chinese banks are seeking opportunities to lend to Western companies, their main objective is to help Chinese enterprises operate overseas, Caplen said.

"As Chinese corporations go abroad to diversify their sources of supply, Chinese banks will naturally follow them," he said.

ICBC's completion in July of its acquisition of an 80 percent stake in BEA USA, the California-based subsidiary of the Bank of East Asia Ltd, paves the way for the Chinese bank to expand its US business. The deal marked the first time the Federal Reserve had approved a Chinese bank's attempt to purchase a US bank.

To Caplen, the deal showed there is "declining US resistance" to Chinese investment.

H. Rodgin Cohen, a partner at Sullivan & Cromwell LLP, the law firm that represented the Bank of East Asia in the transaction, said the purchase of the stake suggests the Fed is more receptive to such investment. But, he added, "nobody knows for sure how receptive it would be" toward future deals.