ICBC Still Hitched to Beijing In Singapore Deal 新加坡协议中工商银行依然依赖中国政府
The global aspirations of top Chinese lender ICBC (HKEx: 1398; Shanghai: 601398) got a big boost last week when China announced a major expansion of its yuan exchange agreement with Singapore, naming ICBC as the local agent to execute the deal. The Central Bank’s award of such major new business to a private lender underscores the close ties that remain between Beijing and China’s top banks, undermining their credibility as they seek to compete globally with big western names like HSBC and Citibank. If Beijing really wants ICBC and China’s other major banks to win global respect, it needs to halt this kind of special treatment. Otherwise it risks keeping these financial institutions dependent on State support for their success, forever stigmatizing them as policy lenders.
Singapore and China were both in the headlines last week when the People’s Bank of China (PBC), China’s central bank, said it would double the size of their currency swap agreement as part of Beijing’s effort to internationalize the yuan. (English article) The new deal saw the PBC raise the size of the swap to 300 billion yuan ($48.27 billion), from a previous 150 billion yuan. This kind of agreement allows local banks to deal in the yuan more freely by letting them buy and sell the currency from China’s central bank, thus reducing their risk of shortages or oversupply.
In a lower-profile footnote to the agreement, the two sides said that ICBC would act as intermediary for all yuan exchanges between local Singapore banks and the PBC under the expanded arrangement. That designation will bring a big windfall for ICBC, which will be able to charge transaction fees anytime local Singapore lenders want to buy or sell yuan from the PBC.
This gift from Beijing fits well with ICBC’s broader plans to become China’s first global lender. ICBC stepped up its global drive in 2007 when it paid more than $5 billion for 20 percent of Standard Bank, Africa’s largest lender. It has accelerated that expansion over the last two years by buying and setting up new units in Argentina, the US , Brazil, Saudi Arabia and Kuwait.
As ICBC’s biggest shareholder, Beijing almost inevitably had to approve all of the moves in the bank’s global expansion – a step that would seldom be required of a major Western lender moving into new markets. Such a relationship is a relic of ICBC’s past as a State-owned lender that made most of its decisions based on policy from Beijing. But the PBC’s designation of ICBC as agent for its expanded deal with Singapore goes too far by showing clear favoritism towards the bank.
Instead of awarding this business to ICBC, the Central Bank should set up another independent, government-funded vehicle to execute its Singapore swap agreement. By continuing to give this kind of preferential treatment to ICBC and other State lenders, Beijing is only showing the rest of the world that its banks need special government support in order to compete with global rivals.
Bottom line: ICBC’s windfall from a new currency deal between China and Singapore shows the bank is still closely tied to Beijing, undermining its credibility as a true commercial lender.
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