BANKING: BBVA’s Citic Sell-Down Shows Foreign Bank Frustration
Bottom line: China needs to accelerate the opening of its banking sector to foreign participation, or risk losing overseas expertise and investment dollars that could revitalize the sector.
Spain’s Banco Bilbao Vizcaya Argentaria (BBVA) became the latest major foreign bank to check out of China last week, when it sold off half of its stake in Citic Bank, a unit of one of the nation’s leading financial services groups. The move follows a similar series of sales by other major foreign financial firms over the last 5 years, depriving China’s state-run banks of valuable expertise they could have used as they make the transition from their past as policy lenders to more commercially-oriented institutions.
A number of reason led to the sales, but a big one of those was the foreign firms’ disappointment at their failure to gain any strategic entry to China’s lucrative banking market through the tie-ups. As China heads into its next stage of reform that includes bringing more private money into traditional sectors, Beijing should seriously consider loosening the many restrictions that now make banking in China difficult and costly for both foreign and domestic firms.
It could even consider letting private companies take control of some smaller regional state-run banks. Such steps could bring much needed private capital and outside expertise into the financial sector, creating a more competitive field of players that can better serve China’s booming private sector and compete on the global stage.
BBVA’s story with Citic reflects the broader experience in a decade-long courtship between Chinese and foreign banks that has largely ended in divorce. Many major global banks, including RBS (London: RBS), Bank of America (NYSE: BAC) and HSBC (HKEx: 5; London: HSBA), purchased major stakes in Chinese lenders back in the mid-2000s, following a Beijing-led overhaul that cleared away much of their bad debt and prepared them for public listings.
BBVA was one of those, initially buying about 15 percent of Citic Bank. But it pared that to about 10 percent in 2013 by selling part of the stake to Citic Bank’s parent, partly to raise capital to replenish its balance sheet as its home market in Spain faced a prolonged recession.
Now BBVA has just sold down a further 4.9 percent of its Citic Bank holdings to Xinhu Zhongbao, one of China’s largest real estate firms, for 1.46 billion euros ($1.64 billion). That will leave BBVA with a remaining 4.7 percent in Citic Bank. (English article)
The sell-down looks similar to another one by Spanish telecoms giant Telefonica (Madrid: TELF), which had a similarly frustrating relationship with China Unicom (HKEx: 762; NYSE: CHU), China’s second largest wireless carrier. Telefonica initially bought a small stake in Unicom in 2005, and boosted it to 10 percent in 2011 with high hopes that the alliance could help it enter China’s lucrative telecoms services market.
But then it sold off half of the stake in 2012, again partly to raise cash at the height of the European debt crisis. It sold off another 2.5 percent last November, bringing its current holdings to just 2.5 percent. (previous post)
China’s telecoms and financial services markets are dominated by state-run companies, and BBVA, Telefonica and the other global banks learned that big names like Citic Bank and Unicom take their orders largely from Beijing, which is often also their largest stakeholder.
Even when foreign banks tried to tie with smaller more entrepreneurial local partners, China’s strict limits provided frustrations that greatly limited their success. A typical case was US-based technology lender Sillicon Valley Bank, which in 2012 formed a joint venture with Shanghai’s entrepreneurial SPD Bank. The pair had big hopes for lending to China’s vibrant field of private high-tech start-ups, only to hit an instant roadblock due to Chinese law that forbids such ventures from doing business in the yuan, China’s local currency, for 3 years.
Beijing has indicated it wants to liberalize state-dominated sectors like banking and telecoms, and has started taking some steps in that direction. It recently awarded its first in a new series of private banking licenses to a group led by Internet giant Tencent, and opened the telecoms services market to private competition last year through a virtual network operator (VNO) program.
Central leaders should be commended for renewing their drive to bring outside money and expertise into these sectors, a move that will create win-win partnerships for everyone, including private business that often find it difficult to get loans from state-run banks. Beijing should seize the recent usiness and expertise – and not just their investment dollars — are welcome in China.
Related posts:
