Small city banks in China are becoming more popular with foreign investors wanting to establish a foothold in the country’s fast-growing retail banking market.
Canada’s Bank of Nova Scotia, HSBC and International Finance Corporation of the World Bank have taken minor stakes in the country’s urban commercial banks (UCBs).
In September, Commonwealth Bank of Australia (CBA) became the latest foreign bank to invest in this sector.
CBA agreed to acquire 11% of Jinan City Commercial Bank in the eastern coastal province of Shandong, for an estimated A$20-A$40m ($14.3m-$28.6m)
The deal, expected to be approved by Beijing soon, will mark the entry of the first Australian bank into retail banking in China.
CBA made another investment in China, a fund management joint venture with Hantang Securities, a Shenzhen-based brokerage, earlier this year.
The Jinan bank is among the biggest of the country’s 112 UCBs, with a registered capital of Rmb1bn.
Set up eight years ago, the bank has a non-performing loan ratio of 5.5%, far below the national NPL average of 16%-17%.
Foreign banks find UCBs attractive partners because they warmly welcome outside investment and have the potential to grow in major cities. These small banks were formed by merging the country’s numerous urban credit cooperatives.
At the end of June, the UCBs had total assets of Rmb1,520bn, about 5% of national banking assets.
