World Crisis Online

By CSC staff, Shanghai The Bank of China (BoC) has entered the UK retail banking business in a big way, offering very competitive loans in the local housing mortgage market.

BoC’s mortgages are being offered at 2.5% above the Bank of England base rate for residential borrowers and 3.5% over for buy-to-rent customers over the total length of the loan. Borrowers need to come up with a minimum deposit of 25% and their credit will be thoroughly vetted. Even at that, the loans will be among the best at offer and unmatchable by presently credit-constrained local lenders.
The mortgages will be sold by four local dealers including Savills and Legal & General.
BoC is the world’s third largest bank, and though the number of its loans will be limited at first, it is felt that the lower interest rates will boost growth quickly. And it has the cash at hand to take this a long way.
BoC is working to make its UK arm a true local bank. It already has five branches in cities across the UK, the only Chinese bank that does, and is doing quite a lot of retail business.
The Industrial and Commercial Bank of China (ICBC), with no present retail business in UK, is set to open a London branch, which ICBC General Manager Xu Jinlei says may be up and running in October, or by the end of the year at the latest. ICBC is soon to open three or four branches in the UK to do retail business.
ICBC plans to set up a global forex trading center in London, so its forex trade will be processed in Beijing, New York, and London all day according to time zone. It is now in contact with tax and supervisory departments and the bank hopes to launch the business as soon as possible.
The financial crisis has brought unexpected opportunities to Chinese banks for their overseas development. Besides organic expansion, there are also chances for M&A. Chinese banks are very cautious, however, of M&A prospects, for such deals may easily become burdens.
But London is hot for Chinese banks. In June, China Construction Bank upgraded its office in London to a branch, and soon after that China Merchants Bank opened an office and began to prepare for the launch of a branch. China UnionPay will begin its business in London in the middle of August, and the Agricultural Bank of China will also upgrade its office in London to a branch.
It now costs about $5 million to register a branch in London. In 2003, to upgrade its office in London to branch, ICBC settled $100 million of capital, the highest capital fund among all of its overseas branches. In 2007, BoC injected £200 million of capital into its newly founded London branch.
ICBC has long focused on the financial and trade financing business in London. Syndicated loans and trade financing account for 60-70% of its total business there, and ICBC has signed trade financing agreements with over 50 local banks. In 2008, its trade financing totaled $2.75 billion. It is also trying to establish cooperative relations with mainstream companies through syndicated loans.
ICBC’s earnings rank No. 1 among all listed banks in the world. The contribution from its overseas business, however, is almost negligible in that total, not because of its slow development but because of the so-rapid growth of the domestic side.
With more opportunities and a larger interest rate gap, the domestic environment is more favorable to Chinese banks at present, but strategic concerns are pushing them to go global. To do so they must enter as local banks into local mainstream markets, where they can also serve as a trade bridge between China and UK.