Bank of China looks to expansion

Press, 17 August 1983, Page 24

Bank of China looks to expansion

By

MICHAEL RANK

PA Peking Business is booming. for the Bank of China, the country’s only foreign exchange bank, as it expands its overseas operations. The volume of the bank’s international business soared 77 per cent between 1980 and 1982, while loans rose by an impressive 19 per cent according to Ding Ning, general manager of its co-ordination and planning department. The bank has in the last few years entered the syndicated loan field, and between 1978 and 1982 lent a total of ?US6BO million, covering 129 loans. Ding said.

“We realise this is not a very great amount but we are new in this field, and are accumulating some valuable experience,” he added.

Ding said the bank had been lead-manager of 24 syndicated loans in Hong Kong.

The bank’s business has soared to a large extent as a result of a rapid rise in China’s foreign exchange holdings, from ?U52260 million in December 1980 to $U512,410 million. Diplomats said that the bank Was being characteristically conservative in the way it was investing these vast sums, and that most of the foreign exchange had been held in short-term instruments, mainly with a term of less than six months on the Eurodollar market.

“There is no reason why China should not place half its holdings in five-year instruments,” one diplomat commented. He also said that Chinese bankers were probably pondering putting some of the funds into Eurobonds with fixed coupon rates, as these had a sound financial reputation. The Premier, Zhao Ziyang, recently urged the Bank of China’s overseas branches to be more aggres-. sive a;d flexible, and the Ding, said

they planned to play a greater role in the future. But asked whether branches would actively pursue foreign companies, in order to increase business, he said: “The Bank of China operates according to its own system, and our managers are still considering just how they will respond to the Premier’s Western bankers in Peking said that Zhfa’s remarks were unlikely to result in a dramatic change in the traditionally cautious and introverted work-style of the bank.

“Zhao would certainly like to see the Bank of China becoming more outgoing and becoming a major world bank. But there’s a big gap between the Premier giving a peptalk and the bank actually becoming a go-getting, western-style bank,” one expert said.

The Bank of China currently has six overseas branches, in Hong Kong, London, Luxemburg, New York, Singapore, and the the taxhaven of Grand Cayman, as well as representative offices in Tokyo and Paris. Ding said there were no firm plans to open further branches or offices, but possible areas of expansion included the Middle East, Latin America, and North Africa.

Expansion could include the establishment of jointventure banks but talks with foreign-firms on such enterprises had not yet taken place, he added. The Bank of China is probably most active and influential in Hong Kong and Macau, where Ding said it and its 13 communistowned “sister banks” had done JUS9OO million worth of business between 1979 and 1982.

In October, 1980, the Bank of China took part in its first property-related loan, worth SHKIIOO million (?NZ23O million), which.®as the largest Hong teSng

dollar loan to date. The bank is currently involved in the syndication of a SHK7OO million (?NZI4S million) loan for a hotel-and-office complex in Canton, according to the lead manager, C.I.C.C. Finance, Ltd. It is also actively interested in financing a proposed nuclear power plant near the Hong Kong border, as well as in China’s offshore oil exploration programme. Although little is known of the Hong Kong branch’s internal structure and its relationship with head office in Peking, many bankers believe it is no less independent than the foreign branch of any major international bank. The economic research manager of the Hong Kong and Shanghai Banking Corporation, D. K. Patel, said: “Its (the Bank of China’s) response to local market conditions has been no different from any other local or foreign financial institution.”’

As in Hong Kong, the bank’s Singapore branch has diversified rapidly from its traditional trade-financing role into development finance, loans syndication, and foreign exchange. A bank official there said that the branch was already trying to expand its loans in the local energy and transport sectors. But its return on assets was only 0.55 per cent in 1981, reflecting the general feeling among bankers that it was too conservative despite its more profitorientated outlook since 1979.

The official said that the bank’s clients were still mainly local Chinese businessmen trading with China-based concerns, and handling remittances to relatives in the People’s Republic was still an important activity. But the bank is now more willing to take risks; its risk-assets in Singapore doubled in 1981.