Foreign investors line up for China financial services play

DBS stake in Shenzhen rural bank signals rising confidence in new round of opening-up

Foreign financial institutions, or FFIs, are planning to increase investment in China's commercial banks or exploring new business opportunities in the country, as China has strengthened efforts to further open up its financial sector, industry experts said.

Singapore's DBS Group announced recently its subsidiary DBS Bank has received Singaporean and Chinese regulatory approvals to acquire a 13 percent stake in Shenzhen Rural Commercial Bank with 5.29 billion yuan ($815 million).

DBS Bank, a multinational banking and financial services corporation, will use funds owned by the bank to buy 1.35 billion new shares of Shenzhen Rural Commercial Bank, abbreviated as SZRCB, at a price of 3.91 yuan per share.

After the transaction, DBS Bank will become the single largest shareholder of the Shenzhen-based commercial lender and will have representation on its board of directors.

The investment will allow DBS to increase its exposure in China, one of its six core markets, and accelerate its strategy to expand and grow in the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) via Shenzhen, Guangdong province, by strengthening a synergetic partnership with SZRCB in multiple markets and fields.

"We are excited to be the largest shareholder of SZRCB and have the opportunity to build a unique value proposition with SZRCB in the GBA and beyond. We see this as a highly complementary strategic partnership that will allow us to double down on the GBA and leverage on SZRCB's local network and knowhow to deepen DBS' GBA strategy," said Piyush Gupta, CEO of DBS.

Elsewhere, the Canada Pension Plan Investment Board said on Feb 11 it is committed to investing about $160 million in CITIC aiBank, an internet-based consumer finance bank in China, representing an around 8.3 percent equity stake in the company.

China's top banking and insurance regulator announced in August 2018 it will remove foreign ownership caps on Chinese banks and financial asset managers. The country also released a series of measures to further open up its financial sector.

Zeng Gang, deputy director-general of the National Institution for Finance and Development, said China's continuous efforts to open itself wider to the outside world are the only way toward optimizing its dual-circulation development paradigm, in which domestic and foreign markets reinforce one another.

"The formation of international circulation will inevitably require further opening up of China's financial system. By further attracting foreign institutions to its financial markets, the country will optimize the structure of its financial institutions, promote competition, improve market efficiency and better serve the real economy and the rising demand for wealth management," said Zeng.

One of the new areas of cooperation between Chinese banks and FFIs is focused on subsidiaries specializing in such segments as consumer finance and wealth management.

China Merchants Bank Co Ltd said on March 19 its wealth management unit is expected to receive an investment of about 2.67 billion yuan from JPMorgan Asset Management (Asia-Pacific) Ltd, which will take a 10 percent stake in CMB Wealth Management as a strategic investor following completion of the capital increase.

Some foreign banks are actively exploring new business opportunities in China to embark on a new chapter. Citi, for instance, said it is pursuing the establishment of a securities company and a futures company in the country.

Citi also announced on April 15 it will exit 13 international consumer banking markets, including the Chinese mainland and India, where its retail banking lacks scale. It will focus its global consumer banking business on Singapore, Hong Kong, London and the United Arab Emirates.

At the same time, however, it will further strengthen corporate banking and explore new business opportunities in the Chinese mainland, the group said.

"Citi has been strongly committed to the Chinese mainland market. Our priority is on supporting all our clients as we transition our franchise toward further opportunities to grow Citi's institutional franchise in the mainland," said Christine Lam, CEO of Citi China and president of Citibank (China) Co Ltd.

"We will continue to assist Chinese clients to expand globally and foreign companies to tap into the vast opportunities in the mainland in support of the mainland's dual-circulation strategy. We look forward to many more years of working with all our stakeholders in the mainland, serving local communities and playing an active role in supporting the mainland's ongoing financial opening-up," Lam said.

The massive domestic market will support huge demand and will inevitably remain highly attractive to foreign investors, said Zeng with the National Institution for Finance and Development.

"Different foreign institutions will look for their opportunities and models of development, which suit them in the China market, and adjust their business here according to their features and advantages. Generally speaking, they will consider China as an important market with huge growth potential," he said.