Bank of China Fires Back At ICBC In Africa

By newsdoug on August 8, 2013

Bank of China in Africa tie-up with Nedbank

After noting last week that Bank of China (HKEx: 3988; Shanghai: 601988) was rapidly losing ground to rival big 4 lender ICBC (HKEx: 1398; Shanghai: 601398 ) on the global stage, the former is fighting back with its own baby step into Africa through a new tie-up with a local partner. The new alliance with South Africa’s Nedbank looks relatively lightweight on the surface, and probably won’t make a huge difference to Bank of China’s Africa business right away. But I still have to commend Bank of China for finally getting a bit more aggressive on the global stage, and would encourage it to make similar moves into other developing markets. It could also eventually buy a strategic stake in Nedbank, following ICBC’s successful example through its own similar tie-up with South Africa’s Standard Bank.

The new tie-up between Bank of China and Nedbank looks more like a starting point than a major milestone for the partners, as each hopes to benefit from the others’ strengths on the African continent. Under the pairing, the 2 banks said they will cooperate in areas like retail banking, credit cards and infrastructure finance. (English article) The lenders also hope to cooperate in currency, allowing Nedbank to do more business in the Chinese yuan while Bank of China will gain better access to the South African currency, the rand.

The bigger picture in this tie-up is the huge investment that Chinese firms have poured into Africa over the last decade. Much of that has gone into the resources sector, as China seeks to feed its own growing economy by helping Africa to develop its vast mineral and oil resources. At the same time, China has also invested big money to develop Africa’s infrastructure, partly to help deliver all those resources to global markets. All of the Chinese companies engaged in such resource development require access to financing and other financial services, creating a huge demand for cross-border specialists with expertise in China and Africa.

ICBC was early to recognize that trend with its landmark $5.4 billion investment for a 20 percent stake in Standard Bank in 2008. That relationship has proven very fruitful for ICBC, which has used the partnership not only to expand in Africa but also to move into the fast-growing Latin American market with its purchase of a controlling stake of Standard Bank’s Argentine unit last year. Last week, media also reported that ICBC was in talks to buy Standard Bank’s London-based forex and commodities trading operations. (previous post)

Bank of China was historically China’s most active bank on the global stage, designated for years as the nation’s main provider of forex services before the nation overhauled its big 4 state-run banks about a decade ago to make them more commercial. Since then, however, Bank of China has been quickly eclipsed by the more aggressive ICBC, whose global expansion has included major new moves into Africa, the Middle East and even North America with its purchase of a US-based bank.

This new Nedbank tie-up looks interesting but largely symbolic, and is most likely designed to see if these 2 partners can work well together before they deepen their relationship. I commend Bank of China for taking the step, and would encourage it to work hard to make this relationship successful to build up its business in Africa where it would enjoy many natural advantages.

At the same time, I would encourage it to keep looking for similar tie-ups in other developing markets like Latin America, the Middle East and other BRICS nations where it would enjoy similar advantages. Bank of China may be about a half decade behind ICBC in launching its global road show, but surely the world is big enough to support major worldwide expansions by China’s 2 most outwardly-focused lenders.

Bottom line: Bank of China should work hard to make its new Africa tie-up with Nedbank successful, and should seek similar pairings in other developing markets.