Mainland banks fear the prospect of a US economic recession, which may result in slower growth of trade surplus and thus hurt sector earnings growth in the world's fastest-growing major economy, the CEO of the mainland's sixth largest bank told Reuters.

Ma Weihua of China Merchants Bank Co said that while the snowballing credit crisis could bring opportunities for mainland banks to expand in the US market through acquisitions or alliances, now it is not a good time to take any action.

"Nobody knows when the crisis will end and where the bottom will be," Ma said. "Whenever you consider a merger or acquisition opportunity, in particular something abroad, you need to be very clear of the risks that you may take."

Despite his caution, China Merchants Bank - the mainland's sixth-largest bank by assets - will expand in the United States this year by setting up a New York branch and hiring local staff, Ma said late on Thursday after his speech at Columbia University in New York.

Ma's comments came after some of China's major financial institutions had already suffered losses on overseas deals they made last year.

For instance, China Minsheng Banking Corp, a smaller rival of China Merchants Bank, has lost half of the value of its purchase of a 9.9 percent stake in San Francisco-based UCBH Holdings. The transaction had marked the first time a mainland commercial bank invested in a US bank.

US impact

The subprime mortgage-related financial crisis has already led to a global debate on whether the US economy has entered its recession. Many mainland banks are concerned because any downturn in US consumption could affect international trade-related banking business, especially Sino-US trade.

Banking regulators in Beijing have repeatedly warned mainland banks of the potential risks of a US economic downturn, urging them to "keep a clear mind" when expanding in that market right now, said Ma, a former senior Chinese central banker and foreign exchange regulator.

"Obviously, the credit crisis is having major impacts on not only American banks but Chinese banks as well," he said. "If our clients suffer, in particular these export company clients, then the bank's business will be also hurt."

The mainland's trade surplus jumped about 48 percent to a record of more than $262 billion for 2007, but senior Chinese officials foresee slower growth in 2008 due to weaker US demand in the wake of the subprime mortgage crisis.

Reuters

(HK Edition 03/31/2008 page1)