Euromoney Alternative Awards: The Thinking Outside the Sandbox While Boiling the Ocean Award for Corporate Speak
1 January, 2018
The Euromoney 25: ICBC
1 January, 2018Euromoney, January 2018
See Euromoney’s 25 feature in full here
Bank of China stands a little apart from the country’s other big four lenders. Its numbers tend to run a little out of step with the herd. While its peers drifted, it logged a 23% increase in profit in its second-quarter 2017 results, thanks to better bad loan data and lending margins; then in the third quarter, it did the reverse and slipped in asset quality while the others improved.
The main reason it looks different is its international business mix. It now operates in 52 countries and regions across six continents. You can find the bank’s circular red logo from Glasgow to Lusaka.
This is really not a bad time to be China’s most internationally focused commercial bank.
The world is enjoying synchronized global growth for the first time in a decade; and the Belt and Road Initiative has Bank of China right at the heart of it.
It is already working out: according to former chairman Tian Guoli, who has been succeeded by Chen Siqing, pre-tax profits from the bank’s overseas institutions were 39% higher in 2016 than the previous year. The contribution of international businesses to group profit was 36% that year – and it is climbing fast. In March, we will learn if these figures climbed again.
Twenty of those 52 countries are in the BRI – and this is a clear strategic priority, tailor-made for the bank. Bank of China says it has “followed up on” (whatever that means) about 480 big BRI projects; during the half year to June 30, 2017, it provided $80 billion of financing support. As with all the state-backed lenders, there will always be questions about how much BRI lending is done on true commercial terms.
Tying itself enthusiastically to the theme, the bank issued two rounds of Belt and Road-themed bonds, raising $3.6 billion.
“Belt and Road countries and regions are regarded as the key areas where our overseas network and business will expand,” Bank of China says.
Bank of China International in Hong Kong speaks best to the bank’s outbound ambition.
In 2016, it ranked number one in Hong Kong IPOs. By mid November 2017, it ranked in the top 10 for Asia ex-Japan investment banking fee revenue, according to data compiled for Euromoney by Dealogic, and ranked second in the region for debt capital markets volume, handling more deals than anyone else to that date.
It is also a player in Hong Kong and mainland M&A, not yet threatening the likes of Morgan Stanley, Goldman Sachs or UBS, but increasingly at the table.
It will be helped in this by its continued leadership in renminbi internationalization – and not just in Hong Kong. It is qualified as a renminbi clearing bank as far afield as the US and leads volumes for cross-border renminbi settlement and clearing worldwide.
It handled Rmb167.92 trillion ($25.3 trillion) of cross-border renminbi clearing in the first half of 2017, up 12% year on year and still leading the market.
An international strategy is not without risk. CLSA analyst Patricia Cheng points out that it also makes it the bank most exposed to interest rate changes in the US. Nevertheless, she rates it a buy.
Domestically, on key metrics, Bank of China can seem a laggard among the big four: behind ICBC and CCB (and sometimes ABC) on market cap, total assets, loans and deposits. CLSA expects a 2018 return on equity of 11.9%, compared with 13.5% at ICBC and over 14% for CCB and ABC.
But like ICBC and the other big four banks, it is well leveraged to trends that ought to give it a very good year: debt levels coming under control; rising interbank rates that benefit the big deposit-heavy banks; and the overall health of China’s economy.
Bank of China’s management describes much the same priorities as ICBC: prudent growth with limited exposure to troubled sectors; pursuit of innovation and technology with the launch of new mobile banking initiatives; gearing towards the real economy and national development strategies; and a focus on smaller and even micro-level enterprises.
All sensible, if not exactly revolutionary.
Despite a slip back to 1.41% in the third quarter from 1.38% at the half year, the non-performing loan ratio is among the best in the industry, speaking either to better risk management or a bolder commitment to disposing of soured loans, and probably both.
“BOC has stepped up efforts to collect and resolve NPLs, and to develop innovative means to eliminate NPLs,” says a spokesperson, adding that the bank has enhanced risk prevention and improved its ability to service the real economy. Some targets for 2018: monetize that international network; and make the retail strategy technologically competitive with young pretenders like Ant Financial and Tencent.
Full article: https://www.euromoney.com/article/b163msdqkkfgk3/bank-of-china-outbound-ambitions?copyrightInfo=true
