ICBC Dips Toe in Brazil 工行巴西分行获准成立
After years of focusing on the domestic market, leading Chinese bank ICBC (HKEx: 1398; Shanghai: 601398) is suddenly embarking on a rapid global expansion, this time with the announcement that it has received the necessary approvals to open a Brazilian unit. This latest move would follow a rapid series of new initiatives over the last 2 years, including new entries into South America, the Middle East and US.
I’ve previously said that ICBC is my favorite among China’s top 4 state-run banks, largely due to its focus on business lending and its well-conceived global expansion that has seen it rely on strong partnerships for its move into new markets. But this latest move into Brazil could also be one of the early signs that ICBC’s expansion is moving too quickly, which could lead to problems down the road. That said, I do still like ICBC for its outward vision and think it’s probably still too soon to say whether its drive to become a global bank is in danger of overheating.
Let’s take a look at the latest news from China’s largest lender, which said it has received approval from the Brazilian central bank to set up a local unit, ICBC Brazil, with about $100 million in registered capital. (company announcement) ICBC said it has also been approved for such a move from the Chinese banking regulator, and that the new unit will engage in the businesses of commercial and investment banking as well as foreign exchange services.
Beijing is no doubt encouraging this kind of move as part of its drive to internationalize the Chinese currency, the yuan. Company watchers will also recall that ICBC aspires to become a global investment bank, and was one of a long list of underwriters for the 2010 IPO for Brazilian energy giant Petrobras. The bank would no doubt like to win more investment banking business in developing markets like Brazil, where it could potentially draw on its emerging markets experience to more effectively compete with big global investment banks from the west.
Media first reported ICBC’s intent to enter Brazil back in April, and this step into the market does look relatively modest based on the $100 million capitalization for the new unit. The move follows a growing number of similar recent initiatives abroad, including ICBC’s purchase of a 80 percent stake of the Argentine unit of South Africa’s Standard Bank for about $600 million, which was first announced last year. (previous post) ICBC and Standard Bank already had a strong partnership before that sale, following ICBC’s purchase of 20 percent of the South African lender in 2007 for more than $5 billion.
More recently, ICBC also paid $140 million for 80 percent of the US unit of Bank of East Asia (HKEx: 23), one of Hong Kong’s largest locally-owned banks. (previous post) Most recently, ICBC announced just last month that it had received permission to open a branch in the Middle Eastern markets of Kuwait and Saudi Arabia. (previous post)
All of these moves are undoubtedly being driven at least partly by China’s desire to internationalize the yuan, since all of these markets where ICBC is expanding do big foreign trade with China. But I do also think that ICBC’s outward-looking top managers are aiming to rival big global names like Citigroup (NYSE: C), HSBC (HKEx: 5; London: HSBA) and Bank of America (NYSE: BAC) within the next decade.
So far the expansion looks solid enough, as ICBC can presumably work with Standard Bank in this latest Brazilian move the same way the pair have worked together already in Argentina and Africa. But I would caution ICBC to slow down a bit from here, and focus on building up its business in the new markets it has entered over the last 2 years rather than entering more new markets. Otherwise, it could soon discover it has more initiatives on its plate than it can comfortably handle, resulting in management problems and poor performance at many of those units.
Bottom line: ICBC’s should slow down its move into new markets following its latest expansion in Brazil, or risk overextending itself as it seeks to become China’s first global lender.
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