Following successful IPOs by ICBC and Bank of China in 2006, the two banks return to the gold and silver positions in this year’s listing. Terry Baker-Self reports.

This issue sees the publication of The Banker’s second Top 100 banks in China listing following on from the expansion of our original Top 50 listing to a Top 100 last year. Information was obtained as part of The Banker’s annual Top 1000 World Banks survey augmented by additional research in the UK and in China.

Following on from very successful initial public offerings (IPOs) on the Hong Kong Exchange by Bank of China in May last year and ICBC (Industrial and Commercial Bank of China) in October, these two banks return to the top of this year’s listing in second and first places, respectively, having previously lost ground to China Construction Bank, following its IPO in 2005.

In spite of these IPOs, the top four banks in our listing – the three already mentioned plus Agricultural Bank of China – remain state-controlled. These four between them account this year for 77.7% of the aggregate Tier 1 capital of the Top 100, which stands at Rmb1662.8bn ($212.9bn), 73.3% of the aggregate assets of Rmb32,217.6bn of the Top 100 and 74.7% of the aggregate pre-tax profit of Rmb291.6bn.

Joint-stock banks

The second largest group of banks in the Top 100 in terms of share of the aggregate Tier 1 capital, assets and pre-tax profit, if not in numbers, are the 11 joint-stock commercial banks, led by Bank of Communications, which account for 15.1%, 19.2% and 19% of the respective aggregates.

Bank of Communications went to market in 2005 and numbers HSBC among its significant investors, and it has just completed a second public offering, this time on the Shanghai Exchange, which is reported to have raised a further Rmb25.2bn. It is anticipated that HSBC will purchase shares to maintain its current shareholding at 19.9%.

China CITIC Bank has also come to market with a dual listing in Shanghai and Hong Kong in April, and exercised an over-allotment option on its IPO to sell 15% of its global offering in Hong Kong. After the over-allotment, total funds raised from CITIC Bank’s IPO totalled $5.9bn.

Prior to the IPO, BBVA paid $1.3bn for a stake in China CITIC and its Hong Kong-listed international arm.

This year we have excluded China Everbright Bank and Guangdong Development Bank from our listing on the grounds that neither has published full financial results since year-end 2003. It is understood that an IPO of China Everbright stock is possible this year following reorganisation but it could require an injection of Rmb20bn from the government as a precursor.

Guangdong saga ends

The saga of the sale of Guangdong Development Bank finally reached a conclusion in November last year, when the Citigroup-led consortium acquired an 85.6% stake for Rmb24.3bn. The newcomer to the grouping this year is Bohai Bank, based in Tianjin, in which Standard Chartered Bank has a 19.9% interest.

The third largest group of banks within the Top 100 in terms of share of the aggregate Tier 1 capital, assets and pre-tax profits are the city commercial banks headed by Bank of Beijing; these account for 5.4%, 5.6% and 4.6% respectively of the aggregates. However, numerically this is the largest group in the list with 65 banks. Over the past 18 months, regulatory pressure has grown on the city commercial banks to reduce non-performing loans and to increase capitalisation to meet the 8% limit for total capital to risk-weighted assets by the end of 2006.

In late 2005, a group of six city commercial banks and seven rural co-operatives in Anhui province merged to form Huishang City Commercial Bank, based in Hefei. And in December 2006, 10 city commercial banks in Jiangsu province in east China merged to form Jiangsu Bank.

Nanjing City Commercial Bank, which was originally set to be the 11th member of this merger, abandoned the option after BNP Paribas took a 19.2% stake and is now planning an IPO.

The new groupings have excited foreign interest – Singapore’s DBS Bank and ABN AMRO are looking closely at the newly formed Huishang City Commercial Bank. Further mergers of city commercial banks into regional champions are probable with banks in Zhejiang rated the next most likely.

Rural sector

The fourth group in our listing comprises one rural co-operative bank and 12 rural commercial banks, which are among the first to be formed under a similar government initiative to that which produced the city commercial banks, but this time by the amalgamation of rural credit co-operatives.

This process is ongoing. The Beijing Rural Commercial Bank, formed from rural credit co-operatives in the suburbs of the capital, is the latest addition to this group.

In our current listing they contribute 1.5% to aggregate Tier 1 capital, 1.7% to aggregate assets and 1.4% to aggregate pre-tax profit.

The final group consists of the seven banks that could best be described as closed-stock companies, including among their number banks that are majority-owned by overseas investors, banking subsidiaries of overseas banks and specialised domestic commercial banks. Their contributions to the aggregate Top 100 figures are 0.4%, 0.2% and 0.2%.

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