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An Overview of Overseas M&A of Chinese Banks

Updated: Feb 22, 2023

With the substantial increase in Chinese foreign trade corporate customers and the demand for cross-border financial services, Chinese banks have gradually established an international market platform through overseas expansion.


After the reform and opening up, China gradually opened its domestic market, and enterprises slowly went abroad. Therefore, Chinese commercial banks started later than Western developed countries regarding overseas mergers and acquisitions of banks.


In 1984, the first overseas merger and acquisition case in the history of a Chinese commercial bank occurred. Bank of China acquired Tai Fung Bank in Macau, marking Chinese commercial banks entering the wave of overseas mergers and acquisitions.


In the early stage of overseas mergers and acquisitions of Chinese commercial banks, the projects were mainly led by large-scale state-owned banks. Strategy has become an important way for Chinese commercial banks to enter overseas markets.


Hong Kong, the First Stop for Overseas M&A


In the initial stage of the global expansion of Chinese commercial banks, the vast majority of overseas M&A projects of various banks choose Hong Kong, and the Hong Kong market is the first stop for overseas M&A.


From 1984 to 2005, as the initial stage of Chinese banks entering the overseas market, most overseas M&A projects were led by the Chinese government.


Another sizeable state-owned bank, the Industrial and Commercial Bank of China(ICBC), acquired 60% of the shares of Westminster Securities in February 1998, marking that the Industrial and Commercial Bank of China has also entered the road of overseas mergers and acquisitions. The Industrial and Commercial Bank of China acquired Hong Kong Union Bank, Belgian Fortis Bank, and Hong Kong Chinese Commercial Bank in the following years.


China CITIC Bank also started overseas M&A projects at this stage. It acquired Ka Wah Bank in July 1998 and Huaren Bank three years later. It is the only joint-stock bank in the first phase of the overseas M&A process of Chinese commercial banks.


The table below is an overview of overseas mergers and acquisitions by Chinese banks from 1984 to 2005.




Overview of Major Overseas Mergers and Acquisitions of My Country’s Commercial Banks From 1984 to 2019

​Time

Acquirer

Target Bank

Transaction Fee

Equity Ratio

1984.9

Bank of China

Macau Tai Fung Bank

80 million Australian dollars

50%

2000.7

ICBC

Hong Kong Union Bank

232 million US dollars

55.24%

2001.10

Bank of China

Hong Kong Po Sang Bank

US$230 million

100%

2002.2

Construction Bank

​Jianxin Bank of Hong Kong

HK$105 million

30%

2004.4

ICBC

Belgian Fortis Bank (Hong Kong)

HK$2.757 billion

100%

2006.8

Construction Bank

Bank of America Asia

$1.229 billion

100%

2006.12

ICBC

Bank Halim Indonesia

$11.4 million

90%

2006.12

Bank of China

Singapore Aircraft Leasing Company

$965 million

100%

​2007.8

ICBC

Macau Seng Heng Bank

$572 million

79.93%

2007.9

Minsheng Bank

​Union Bank

$96 million

4.9%

2007.11

Bank of China

Bank of East Asia

$510 million

4.94%

2008.3

ICBC

Standard Bank of South Africa

$5.46 billion

20%

2008.5

China Merchants Bank

Wing Lung Bank (Hong Kong)

HK$19.302 billion

53.12%

2008.9

Bank of China

Rothschild Bank

236 million euros

20%

2009.5

CITIC Bank

CITIC International Finance

HK$13.56 billion

70.32%

2009.6

ICBC

Bank of East Asia (Canada)

HK$567 million

--

2009.10

ICBC

ACL Bank of Thailand

HK$4.2 billion

97.24%

2009.11

Construction Bank

American International Credit Co., Ltd.

$73.5 million

100%

2010.1

ICBC

Bank of East Asia (USA)

$150 million

80%


2011.10

ICBC

Standard Bank Argentina

60 million US dollars

80%

2013.11

Construction Bank

Banco (Brazil)

160 billion riyals

72%

2014.1

ICBC

Standard Silver Public

$770 million

60%

2014.4

ICBC

Tekstil Bank

$316 million

75.5%

2015.5

Bank of Communications

BBMbank

525 million rials

80%

Data source: According to bank announcements


Fast & Quick M&A in the Financial Crisis


After the financial crisis in 2008, the global economy recovered slowly, Internet finance and other new financial technologies continued to develop, and the interest rate spreads of traditional commercial banks gradually decreased.


Coupled with fierce industry competition, banks' profit margins have become smaller and smaller. In this external environment, Chinese commercial banks took the opportunity to achieve mixed operations through overseas mergers and acquisitions, thereby adjusting business profitability and building a new diversified operation mode.


At the same time, the new profit model can also increase its influence in China domestic and foreign markets. The number of overseas mergers and acquisitions of Chinese banks has increased since the 20th century, especially after the 2008 financial crisis, when the number of overseas mergers and acquisitions reached the highest.


Compensate for Decline in Domestic Operating Income


By setting up new overseas branches or directly acquiring overseas commercial banks for investment integration, Chinese banks can diversify geographically and diversify risks from exchange rates, interest rates, and policies of various countries.


The primary source of income for Chinese commercial banks is the spread of traditional deposit and loan businesses. However, due to the rapid development of Internet finance, the living space of the traditional banking business has been further squeezed, and the spread of deposit and loan interest has further narrowed. The profits obtained by this have gradually decreased. In previous years, banks' advantages in the deposit and loan business progressively show weaknesses.


However, due to the regulatory requirements of my country's banking industry, achieving mixed operations and developing multi-field businesses in China's domestic market is temporarily impossible. Improving business diversification through overseas mergers and acquisitions is the most effective way within the scope of options.


RMB Offshore Business


At the same time, in 2009, China launched the RMB cross-border settlement pilot project and achieved phased success in Hong Kong. Since then, Chinese banks have extensively promoted and developed globally by expanding its RMB offshore business and linking with international financial centers and global markets.


ICBC, as the vanguard of Chinese banks' overseas mergers and acquisitions, has gradually enhanced its influence in Southeast Asia by acquiring Thailand's ACL Bank, thereby promoting the RMB settlement process of trade in the region.


Under the support of Belt & Road Initiative, RMB offshore business has taken a significant step. ICBC also eyed at Turkey by acquiring Tekstilbank, which China believes is a vital RMB circulation channel.


At the same time, through the merger and acquisition of Standard Bank of South Africa, ICBC has obtained commodity customer resources, strengthened product capabilities, improved the position of RMB in the international market, and further promoted the process of RMB cross-border settlement.



 

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