AMBITIOUS ICBC: The largest bank in China is expanding overseas by setting up branches and subsidiaries in foreign countries

Building on its success with new branch offices in the Middle East earlier this year, the Industrial and Commercial Bank of China Ltd. (ICBC) has embarked on a new mission-to head south and establish a branch in Sydney.

It appears that the bank will not have to wait much longer. The Australian Prudential Regulation Authority has just granted ICBC a foreign authorized deposit-taking institution license. The bank expects to open its first Australian branch later this year, said Morris Iemma, Premier of New South Wales, at a press conference in Beijing on May 23.

"The ICBC's choice of Sydney for its first Australian branch confirms Sydney's reputation as our country's financial capital and as a leading financial center in the Asia Pacific," Iemma said. The new branch would create more than 20 financial service jobs in New South Wales, he added.

Compared with local banks in Australia, ICBC has less experience in developing local banking resources. ICBC Chairman Jiang Jianqing said his bank was expanding overseas mainly to meet the demand of Chinese companies that are setting up foreign operations. Along with economic globalization, an increasing number of companies are going beyond their national borders to develop overseas businesses, so they need a Chinese bank that offers international services, he said.

"We will provide more favorable conditions for Chinese companies investing in overseas markets," Jiang said at the Lujiazui Financial Forum in Shanghai in May. "We know more about the exact needs of Chinese companies, which gives us a competitive advantage in competing with banks from other countries."

Heading abroad

ICBC started going overseas in 2006 after it completed its shareholding reform. During the past two years, it has set up branches and subsidiary offices in Doha, Qatar, and Dubai, United Arab Emirates.

The international expansion is "part of the result of ICBC's operational transformation and asset readjustment," said Yang Kaisheng, Vice Chairman of ICBC, on the sidelines of this year's National People's Congress in Beijing in early March. ICBC's credit business, which is growing at an average of about 10 percent annually at home, has contributed to a 30-percent growth in profit over the last five years.

"But ICBC is looking for more," Yang said. "We cannot rely only on profit growth on deposit and loan interest differences."

ICBC's overseas business now accounts for 3-4 percent of its overall assets and profit, according to the latest information on the bank's website. Yang said the bank plans to increase this amount to around 10 percent in the future.

Since its listing on the mainland A-share market in 2006, ICBC has made three acquisitions of foreign bank stocks in overseas markets to date: Indonesia's PT Bank Halim, Macao's Seng Heng Bank Ltd. and Standard Bank of British South Africa Ltd. The last acquisition has been the most notable: ICBC bought 20 percent of the South African bank's stocks worth $5.46 billion, making it the biggest acquisition deal by a Chinese bank.

Acquisitions are not the only way that ICBC is gaining ground on foreign soil. It also is opening more branches in overseas markets. Last November, ICBC opened a subsidiary in Moscow with registered capital of more than $40 million, making it the biggest overseas investment by a Chinese bank.

After ICBC received approval to set up a branch in Sydney, it embarked on a new mission--applying for opening a branch in New York. ICBC had set up a representative office in New York as early as 1997. But it only has served as a middleman to connect the bank's headquarters and clients in the United States. So far, it has not been able to provide banking services. Now ICBC wants to set up a branch in the city so it can provide full services to its clients in New York.

At the end of last year, ICBC's overseas network included 13 countries and regions, with 112 overseas branches, according to its latest annual report. It also had 1,349 correspondent banks in 122 countries and regions.

Banker beware

Although ICBC appears to be sailing smoothly ahead with its foreign expansion plans, it must exercise good judgment, one expert said.

Yi Xianrong, a finance researcher at the Chinese Academy of Social Sciences, told the China Economic Times that overseas expansion is a "double-edged sword" for Chinese banks. He cautioned that domestic banks should not take hasty steps to establish operations overseas.

Banks such as ICBC must optimize their operations and risk control systems before they enter foreign markets, Yi said. For instance, they must collect more information about financial rules and regulations in the foreign countries in which they want to operate, local economic development levels and different cultures before they make decisions.