Lender finds fertile fields in overseas markets

ICBC keeps growth pipeline robust with initiatives to help Chinese firms' business expansion, reports Jiang Xueqing.

Like many domestic banks, Industrial and Commercial Bank of China Ltd is facing pressure from all sides.

The pressures include a slowing economy, corporate restructuring that reduces the need to raise funds for domestic purposes and tougher competition in the finance sector, all of which are cutting into its profit growth. One of the solutions for ICBC has been to focus more on overseas operations.

Its foreign business is being boosted by opportunities arising from the yuan's internationalization and the "Belt and Road Initiative" of the Chinese government－the Silk Road Economic Belt and the 21st Century Maritime Silk Road.

As the nation's largest lender by assets, ICBC's pre-tax profit from overseas operations rose 41 percent in 2014 to nearly $2.7 billion.

However, overall growth in net profit attributable to equity holders fell to about half the 2013 level－5.01 percent versus 10.11 percent.

Chairman Jiang Jianqing said that the bank's overseas operations have benefitted as more Chinese companies expand abroad. That trend is offsetting the impact of a downturn in the domestic banking sector.

Commercial banks' profit growth is weakening in general as their corporate clients undertake structural adjustment by deleveraging (meaning that they borrow less and/or reduce outstanding debt) and cutting excess capacity.

Interest rate liberalization, financial disintermediation－the reduction of banks' role as a middleman－and increasing competition from Internet finance are also making it harder for banks to maintain profitability, Jiang said.

"To overcome these challenges, we are making adjustments to our business strategy. Some of our efforts, such as the acceleration of ICBC's global expansion, have already had an effect by boosting bank profits," he said.

At present, the lender has a global network of 42 countries and regions and 397 overseas outlets of various kinds, compared with 98 overseas outlets before it went public in 2006.

Gao Ming, general manager of the international banking department, said the bank will further expand its global footprint in the next two or three years, although domestic business will remain its focus.

"Next, we will configure our global network by seeking good targets for acquisition as well as applying to establish overseas branches. And we will make greater efforts to acquire product lines, such as those of global investment banking, asset management and private banking," Gao said.

Last year, ICBC acquired 60 percent stake in the United Kingdom-based subsidiary of South Africa's Standard Bank Group Ltd to strengthen the competitiveness of its own product lines of commodity and foreign exchange trading.

Zhang Xingrong, head of banking industry research at Bank of China Ltd, said developing overseas business is a crucial option for Chinese banks as they adjust regional strategies.

"In 2014, the overseas operations of the four largest commercial banks had an average growth rate of more than 20 percent in assets and 30 percent in operating profit, well above the growth rate of the groups' total assets and operating profit.

"These numbers show that overseas strategies have a significant meaning to the banks in terms of income diversification, risk distribution and performance stability," Zhang said.

Except for Bank of China, the overseas operations of large commercial banks contributed less than 10 percent of each group's overall profit, so such business still has great potential for growth, he said.

ICBC is also making big strides in the cross-border yuan business. Since China launched pilot programs involving cross-border yuan trade settlement in 2009, ICBC has handled cross-border transactions exceeding 8 trillion yuan ($1.29 trillion), with an annual growth rate of more than 200 percent.

In 2014 alone, its cross-border yuan business exceeded 3.6 trillion yuan, up 66 percent.

By the end of last year, this category of business contributed nearly 25 percent of the total profit of ICBC's overseas operations.

It was also designated by the People's Bank of China, the central bank, as the yuan-clearing bank in Singapore, Luxembourg, Qatar, Canada and Thailand.

Gao said the bank will keep introducing innovations in yuan-denominated financing, settlement and transaction products. It will also take advantage of policies in China's free trade zones to cut corporate financing costs by helping companies raise money or get yuan loans overseas.

"When we opened a branch in Paris in 2011, many local residents came to ask whether we had yuan-denominated products. To meet the demand for investment in yuan-denominated products overseas, we will make asset management a business priority and exploit China's attractiveness as a destination for investment," she said.

"We'll develop our asset management business by issuing more funds and remaining open to merger and acquisition deals when a good opportunity arises," she said.

Last year, ICBC launched a publicly offered investment fund in Europe. The current return on the fund is well above the average investment return in Europe, she said.

The lender also received approval from Luxembourg to set up a private placement investment fund to meet the investment demand of its private banking clients in and outside China.