New deals, old questions for China's bank investments
Few financial issues in Asia are debated as hotly as the state of China’s banking system and the billions continually poured into mainland lenders by foreign financial institutions and lenders as the banking market is slowly opened up.
Naysayers predict that change has amounted to nothing more than window-dressing. The argument runs that the banks, already saddled with huge legacy non-performing loans, add new NPLs to the pile each month secure in the knowledge that the government will turn up on time with another chunk of foreign exchange reserves to shore up their balance sheets. Foreign banks are merely pouring good money after bad, say these critics.
Singapore’s Oversea-Chinese Banking Corporation Limited (OCBC) is the latest foreign bank to pour its money into a Chinese bank, having in January announced a proposal to purchase a 12.2% stake in Ningbo Commercial Bank (NCB) for Rmb570 million ($70 million) by subscribing for new shares at a price of 2.1 times 2004 book value. Dutch lender Rabobank is also rumoured to be in the final throes of negotiations over a 14.9% stake in Hangzhou Cooperative. The next big state bank to hit the markets is Bank of China, having already filed for an estimated $6 billion IPO in Hong Kong, most likely in February.
Amid all the cynicism surrounding mainland Chinese banks, evidence has recently emerged that the financial condition of the state banks might not be as parlous as some believe and that perhaps foreign investors are not as rash in pursuing investments into Chinese lenders.