Chinese banks are set to make their mark globally in the aftermath of the financial turmoil

Chinese banks have long gone unnoticed abroad but the global financial crisis has now positioned them to play a major role in changing the sector.

"Chinese banks have many more opportunities than before the crisis," says Xu Jinlei, the managing director of the Industrial and Commercial Bank of China (ICBC) London.

"It used to be hard to get business from big multinational firms as local banks offered them enough support. But many firms began coming to us after the financial crisis," Xu says.

ICBC is the world's largest bank in terms of profit and market capitalization and has a fully owned subsidiary in London.

ICBC London had total assets of less than $200 million (149 million euros), negligible profits and very little business in 2005, Xu says. But 2010 has been a good year for the bank and it anticipates a turnover of about $8 billion. In the past three years, the bank has also tripled the number of local employees in the global financial center to 60.

Xu says the bank, which now operates from rented premises, will soon move into its own building that was acquired at 16.5 million pounds (19.5 million euros). The building, in the center of the City, London's financial hub, can house up to 200 people, in line with the bank's expansion plans.

Besides ICBC, other Chinese banks have also expanded rapidly overseas in the past years. Bank of China (BOC) UK has moved into a new building adjacent to the Bank of England in the City. China Construction Bank (CCB), which started operations in 2007, opened its first subsidiary in Canary Wharf, London's new financial hub, in June 2009.

Bank of Communications and Agricultural Bank of China are expected to open subsidiaries in London soon, while the Shenzhen-based China Merchants Bank set up a representative office in 2009.

Xiao Gang, chairman of BOC, earlier said the post-financial crisis environment provides excellent overseas expansion opportunities for Chinese lenders.

"Financial institutions devastated by the global crisis still need time to recover. Chinese banks that have the ability should hasten their pace in 'going abroad' and increase their international competitiveness."

BOC is the only Chinese bank to have a presence in the UK for more than 66 years. It opened an agency office in November 1929 with five employees and upgraded its status as a branch in 1946.

Though Chinese banks have started expanding their presence in the last few years, they still face hurdles in regulatory procedures, Xu says.

Even though Chinese banks in London number about six, BOC is the only lender which operates as a branch of its China headquarters. All the other lenders have wholly owned subsidiaries or representative offices.

In other words, no Chinese bank has been allowed to open a branch in the UK since 1946. The difference between a branch and a subsidiary is that the latter is subject to local regulations.

Xiao Shaolin, executive director of CCB London, says the UK is a strictly regulated financial market.

"Getting a banking license is the hardest thing," he says.

Concurring with Xiao, Xu says it took eight years for ICBC to upgrade its London representative office to a subsidiary.

"Regulators in the West still think that Chinese lenders need to undergo more reforms and are saddled with too much bad debt," Xu says.

Xu says ICBC largely focuses on multinational corporations that have business links with China or on those that wish to do so.

According to Xiao, Chinese banks should come together and offer financial services to support Chinese companies planning overseas expansion.

"We can offer more choices for PetroChina and China National Offshore Oil Corp," he says, noting that CCB's biggest achievement has been a $20 million loan offered to Chinese automaker Geely to purchase Swedish carmaker Volvo.

Chinese lenders are also attracting savings from Europe-based multinational companies. ICBC London's Xu says while it was hard to draw these firms to Chinese banks before the financial crisis, they now have about a dozen big savers including British Airways.

In addition, ICBC and the BOC offer retail banking, mainly for local Chinese customers, in London. Both of them have branches in London Chinatown, though ICBC is itself a subsidiary. Xu says about 1,500 accounts have been opened since the branch was set up last year. The bank will issue bank cards and open online banking services for account holders next year, he says.

"It is logical for Chinese banks to expand internationally as they follow their Chinese corporate clients," Peter Sands, chief executive of Standard Chartered Bank, told the Financial Times in Beijing in November.

"But they will do so in a relatively cautious manner, which I think is wise."