The financial power of two

As the major bank in China and one of the largest in the world, ICBC has made strides in Africa, the emerging market that many financial institutions are fighting for. Provided to China Daily

ICBC's alliance with Africa's largest bank has produced benefits for customers

When the world's most profitable lender buys the biggest stake in Africa's largest bank, it creates a huge number of opportunities to leverage size and resources.

It can also present challenges in meshing the structures, procedures and products of two financial behemoths.

Industrial and Commercial Bank of China Ltd, the world's largest bank by total assets and market capitalization, made a major move into Africa in 2008 by investing $5.5 billion for a 20 percent share of Standard Bank Group of South Africa, becoming the largest stakeholder in Africa's largest bank, which operates in 18 countries in the continent.

Since then, the relationship has grown even closer.

"Coming to Africa was a crucial part of ICBC's vision to establish a global operational network, and a vital strategy to seize such a booming market," says Wang Wenbin, chief executive officer of ICBC's African representative office.

Before it established a strong Africa complement for its global network, ICBC's clients had to turn to other banks for better service in the continent, a factor that sometimes influenced the bank's domestic business as well,Wang says.

In 1992, ICBC started setting up overseas branches and offices from the ground up. The bank now has 329 branches and representative offices in 40 countries.

That strategy, with overseas offices more directly controlled by a company's headquarters, is a traditional method for Chinese banks to expand into foreign markets, Wang says.

"It's a cautious, small scale and low risk way to invest. This can have advantages but also severe hindrances since establishing local networks and client relationships is really slow."

In the late 1990s, ICBC had accumulated overseas experience, raising its capabilities in capital control, management and risk control. It changed its strategy, moving toward mergers and acquisitions, which is more locally oriented and reduces cost.

"Another factor that prompted our transition was the fast expansion of Chinese companies in foreign countries, especially in Africa."

Wang says each party in the alliance has been learning about each other and adapting to each other's pace.

The accord was carried out in an open and equal manner, Wang says, which enabled both parties to smoothly share and commit to the same overall visions and goals.

Wang notes that the two banks are financial giants that had their own complicated management structures, risk control procedures, pricing systems and financial products. They still have a long way to go to coordinate all those elements to better serve their customers in Africa, he says.

"Many products and services need to be provided jointly by us, and we are solving many detailed problems every day in ways we have agreed on," Wang says.

ICBC is also helping guide the South African bank's moves. When Standard Bank cut back on some of its international operations in the wake of the world financial crisis, ICBC helped reshape the bank's vision.

"Standard Bank is an international bank group that had many operation points in various continents, but since 2010 we have been pushing a vision of returning to Africa for the group, to make the best use of its advantages to invest in the most promising continent," Wang says.

Those advantages work well with the strong international network ICBC has established, he says.

"That's why the bank has promoted its 'back to Africa' strategy and made its commercial slogan 'They call it Africa but we call it home'," he adds.

"Our African business at this stage still largely relies on Standard's local network and resources as it's capable of providing comprehensive financial services to our customers including corporate investment banking, deposits, loans, transfers, insurance and nearly all other related financial business," he says.

Still, with the strategic cooperation with Standard, ICBC's customer network has grown from the traditional customers in the Chinese community to local customers who mainly do business and trade related to China.

The financial heft of the two institutions allows them to provide customers, especially Chinese customers, with specific products and services such as exchange rate risk hedging to ensure their financial security in Africa.

Some Chinese companies may be refused credit by local banks due to their relatively small operations in Africa, but they may be trustworthy ICBC clients in China, he says. So, ICBC would work with Standard Bank to support them with financial services in Africa.

"We ensure the quality of those companies to Standard, and we share information, resources and even credit limits, which couldn't be done by any other local or international banks," he adds.

"This has been proved to be effective and efficient, so we expect a long-term strategic partnership between us."

Standard Bank Group also announced in January that ICBC agreed to buy control of Standard Bank Group Ltd (SBK)'s markets unit to grow in trade spanning commodities and interest rates to currencies, Bloomberg reported.

Standard sold 60 percent of the London-based business to ICBC for about $765 million and granted the Chinese bank a five-year option to buy an additional 20 percent stake.

The move fits with ICBC's plans to become more international.

"We have accelerated our process to merge or acquire foreign banks in other parts of the world including Southeast Asian countries, Latin America and North America, on the principle of attaching importance to both mature and emerging markets," Wang says.

"But of course, emerging markets deserve more attention."

In March, ICBC announced annual profits of $263 billion last year, an annual increase of 10.2 percent on the previous year.

lilianxing@chinadaily.com.cn

(China Daily Africa Weekly 08/08/2014 page19)