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WHOLESALE BANKING | Cesar Tordesillas, China

Chinese banks unprepared to run major Euro banks: experts

Chinese banks are eager to make acquisitions abroad, but may not have the managerial capability to run major European banks.

Ba Shusong, deputy director general at the Development Research Center of the State Council, believes mainland banks will continue to make overseas acquisitions but many of these will be nearer to home rather than in Europe and the United States.

"I think Hong Kong will be a favorable starting point for many mainland banks wanting to expand overseas. They are more familiar with the Hong Kong business environment, particularly its laws and regulations. Hong Kong also enjoys a less rigid banking regulatory system."

He made the observation just after China Construction Bank Chairman Wang Hongzhang said that he is prepared to spend up to $15 billion on a major acquisition in Europe.

"Some of the banks in Europe have been put up for sale. Now we are looking for the right choice," Wang said.

Wang may be setting his sights on the Royal Bank of Scotland, 82 percent owned by the British government, and with a market capitalization of $17 billion; or Commerzbank, also part owned by the German government, valued at $9 billion.

However, the director and head of Chinese banks' research for Barclays in Hong Kong, May Yan, does not believe Chinese banks have the management capability yet to take over a major bank.

"I think Chinese banks will make acquisitions but I am not sure they can buy, for example, Royal Bank of Scotland. It is just too big a task," she says.

"They just don't have the international experience to manage such a bank and culturally it would be very difficult, too."

Wang Yongli, vice-president of Bank of China, said recently that while Chinese banks had the cash resources to make acquisitions they still faced difficulties.

"One of the biggest challenges for Chinese banks going abroad is the unfamiliarity with laws in overseas markets," he said.

Wang noted the huge differences among different countries' laws, taxation and financial regulations.

Zhu Min, deputy managing director of the International Monetary Fund, told the Beijing bankers forum that Chinese banks would have to up their game to meet these.

"Only if one is fully prepared for the constant changes in the global financial market can one win against global competition," he said.

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