Bank of China's office stands close to the Bank of England in the financial hub of London. Zhang Chunyan / China Daily

Chinese lenders enhance presence in British capital to further global moves

The spectacular elegance of Drapers' Hall in London has often been an irresistible magnet for global filmmakers. More recently, it served as the Buckingham Palace in the Oscar-winning movie The King's Speech.

But eyebrows were raised this spring when the protagonist in the hall was not a film company or the British royalty, but an expanding Chinese bank.

The venue was used by the Agricultural Bank of China Ltd, a major commercial lender ranked among the Big Four banks in China, to announce the opening of its overseas branch office in London.

Yan Haiting, chief executive of ABC in London, says it is the latest overseas branch of the bank after it opened its first overseas branch in Singapore 18 years ago.

The new address means ABC has now 10 overseas institutions in eight countries and regions, along with alliances with more than 1,365 agent banks globally.

More importantly, the ABC event was evidence of the rapid pace with which Chinese lenders are expanding in the international financial markets, particularly in London.

According to available data, from the end of 2008 to the end of 2011, the foreign assets of China's Big Four banks - Industrial & Commercial Bank of China Ltd, China Construction Bank Corp, Bank of China Ltd and ABC - had mushroomed from 2.41 trillion yuan ($379 billion, 300 billion euros) to 4.13 trillion yuan. The number of investments has increased to more than 1,200 from 959.

In developed and mainstream markets, most of the big Chinese lenders view establishing a UK subsidiary as an important step in their European and global expansion programs, and a key landmark in building a global financial services springboard.

BOC set up its first overseas branch office in London in 1929. It was the first overseas financial institution established by a Chinese bank.

In 2010, around 300 employees of its London branch and UK subsidiary moved into a new office building that stands shoulder to shoulder with the more than 300-year-old Bank of England in the heart of London's financial hub.

Fang Wenjian, chief executive of BOC (UK) Ltd, says the London branch realized a 35 percent year-on-year growth in 2011 in the international settlement business, the volume of which stood at $17.2 billion (13.7 billion euros) by the end of October.

Currently, 90 percent of its employees are recruited locally, of whom many are mid-level or senior managers, Fang says.

In March, BOC (UK) Ltd won a highly recommended award from Business MoneyFacts Awards for its buy-to-let mortgage services. The awards, which attracted many famous banks like HSBC and Santander, are the largest business finance awards in the UK.

The London operation of ICBC, which also has a six-story home near the Bank of England, was established in 2003 though the bank set up a representative office in London in 1995.

Although ICBC is the world's largest bank by market capitalization and has 244 overseas branches in 34 countries and regions, it wants to establish an image as a local bank in the Western financial hub.

"We comply with regulations of local authorities and carry out our business professionally," Xu Jinlei, general manager of ICBC (London) Plc, says.

"Our strategy is to let our clients see us as a local bank, instead of a Chinese one."

Following in their steps, China Construction Bank opened its first subsidiary in Canary Wharf in June 2009.

In July 2009, the Shenzhen-based China Merchants Bank set up a representative office in London, while Bank of Communications (BoCom), China's fifth-largest lender, opened its first overseas subsidiary in London in November.

UK Trade & Investment CEO Nick Baird says that as one of the most open economies in the world, he believes the UK "is a natural home for Chinese enterprises".

CMB London's chief representative Pan Kang says the representative office was the first step by the lender to tap into the UK and European markets.

The financial crisis and the eurozone debt crisis have also created opportunities for the bank to further develop its business in the UK and Europe.

Adrian Blundell-Wignall, deputy director of the directorate for financial and enterprise affairs at the Organisation for Economic Cooperation and Development, said in a recent interview with Bloomberg News Service that European banks are not only poorly capitalized, but also mix investment banking with traditional retail and commercial banking.

Risk exposures in large, systemically important financial institutions can't be properly quantified, let alone controlled, he said.

Bank shares in Europe have been hammered over fears that they are not strong enough to withstand the body punches dished out by the eurozone debt crisis.

"Clients who are finding it difficult to get financial support from European banks will turn to the Chinese for help," says Pan from CMB.

However, Chinese banks still have much to do to improve their chances of winning a larger share of the pie, as the competition is fierce.

Serving Chinese companies in Europe seems to be a natural choice for Chinese lenders, but the trading volume is too small, and the more established firms have already forged close ties with local financial institutions.

For instance, HSBC has 58.5 percent of its assets and 68.6 percent of its income coming from areas outside Europe, while Citibank has 52.3 percent of its income contributed by business outside North America. The data shows how difficult the task ahead is for Chinese lenders.

Analysts also note that creating long-term stable customer relations, making up for cultural differences, and coming out with more special financial products are the key requirements for healthy and sustainable development.

Chinese lenders must find their own niches to survive and grow in Europe, the analysts said.

CCB, for its part, is banking on enhancing its reputation in wholesale, retail and investment banking. One of its biggest achievements so far in London has been the $20 million loan offered to Chinese automaker Geely to purchase Swedish carmaker Volvo in 2010.

The Hangzhou-based auto giant bought Volvo for $1.8 billion in 2010, making the deal the biggest overseas purchase by a Chinese auto enterprise.

Unlike CCB, a new niche that ICBC London has discovered is to act as a bridge in the trade between China and Europe.

ICBC has created a solid customer base in the UK as more companies in these regions seek to export commodities and raw materials to China. To a certain extent, ICBC London's goal has been achieved. It generates most of its revenue from international firms instead of Chinese companies.

Liu Qiang, CEO of BoCom's London subsidiary, says its London unit relies strongly on the excellent "customer, financial and network advantages of its parent to serve Chinese enterprises operating overseas, and foreign companies that have close trade connections with China, along with local businesses in the UK".

The subsidiary has more than 20 employees in the UK. Their main customers include China National Petroleum Corp, China's largest oil and gas producer and supplier, and Associated British Foods, a diversified international food, ingredients and retail group.

BoCom's London representative office was set up in 1993 to deal with the bank's non-transactional activities. BoCom has 11 overseas institutions in cities including New York, Tokyo, Singapore and Hong Kong.

Chinese banks are also playing an increasingly important role in the UK financial services sector and also in promoting growth between Britain and China.

With the British government looking to make London an offshore trading center for the Chinese currency, Chinese lenders are expected to make further inroads.

BOC (UK) Ltd has started to offer more yuan products in the past two years, including opening a yuan bank account, foreign exchange services and trade finance in yuan.

Fang says: "Although the development of renminbi products in Europe is slower than Asia, we think it has huge potential."

zhangchunyan@chinadaily.com.cn

(China Daily 09/07/2012 page14)