Foreign banks will likely feel snubbed by news that Agricultural Bank of China (ABC) chairman Xiang Junbo is reluctant to take on foreign strategic investors as the bank prepares for its initial public offering (IPO).
Xiang told the Wall Street Journal that any bank hoping to become a strategic foreign investor in ABC would have to meet a string of qualifying criteria. Any lender that has suffered considerably as a result of the financial crisis – i.e. most of the big players in Europe and the US – need not apply.
Xiang’s comments serve to show how times have changed since the heady days of 2006, when three of China’s Big Four state-owned banks – Industrial and Commercial Bank of China (ICBC), Bank of China (BOC) and China Construction Bank (CCB) – welcomed foreign investors with open arms. The domestic lenders saw their foreign counterparts as a source of credibility that would help drive the IPOs and, in the longer term, as a fount of banking knowledge and experience that would push China’s banking sector towards modernization.
Of course, those partnerships have all but evaporated since the financial crisis dealt European and US banks such a severe beating, with most foreign investors cashing out their shares as soon as lock-in periods expired. In January, RBS sold it’s stake in the BoC, following hot on the heels of UBS. In April, American Express and German insurer Allianz unwound the bulk of their holdings in ICBC, with Goldman Sachs doing the same in June. Bank of America unloaded a third of its stake in CCB in May.
So few could blame ABC – the last of the big four banks to launch an IPO – for feeling that foreign investors have proved fair-weather friends in their previous dealings with China. Foreign counterparts have lost one of their biggest assets since the financial crisis, namely their ability to offer a credible brand. At the same time ABC hardly need a foreign name to drive them forward in a country that is leading the world in terms of IPO revenues.
But the relationships between Chinese and western banks were never just about cash or credibility. Domestic lenders are keen to learn from their foreign counterparts, but transferring management and operational ideas – some of which are at odds to the established norms of China’s banks – and implementing in bureaucratic institutions with vast branch networks is never easy. The cooperation agreements struck with the first wave of foreign strategic investors delivered mixed results, and this is something ABC should bear in mind when considering its potential partners.
Speaking on Wednesday, Xiang commented that the biggest lesson from the global financial crisis is that "banks need to pay attention to risk, risk, risk," but with a banking sector that has doled out US$1.27 trillion in loans already this year, perhaps risk management is one lesson that Chinese banks still need to learn.