Commonwealth Ready To Jump If Beijing Relaxes

Sydney Morning Herald

Monday June 16, 2008

Danny John

THE Commonwealth Bank will look to expand its investments in two leading regional Chinese banks if the Beijing Government relaxes the restrictions on shareholdings that prevent foreign institutions owning more than 20 per cent.

Keen not to be outdone by its rival ANZ in the push into Asia, the Commonwealth is targeting China as the one country in the region that it cannot ignore as it looks to capitalise on what has been a slow-burn expansion since the start of the decade.

Having acquired minority stakes in banks in Hangzhou and Jinan and established a joint venture life-insurance company, the Commonwealth wants to increase its presence in Shanghai and Beijing, where it has two representative offices.

That may involve a fledging branch network under its own name, but in the meantime it is focusing on its two partner banks, which are extending their operations in their provincial strongholds on the increasingly wealthy east coast.

And just as China has experienced explosive growth, the profitability of the Hangzhou City Commercial Bank (in which the Commonwealth has 19.9 per cent) and Jinan City Commercial Bank (11 per cent) have grown sharply over the past year with earnings up by 40 per cent in each case.

ANZ, has also bought into two regional institutions. But the Chinese Government limits overseas shareholders to no more than a fifth of the stock in any of the country's banks.

Foreign banks are also only allowed to buy into two of their Chinese counterparts.

While moves to majority control seem unlikely to be sanctioned, the rules could be relaxed to allow foreign shareholders to take higher minority stakes.

"If the shareholder arrangements were to be changed, then quite clearly we would be interested in increasing our holdings if the value was there," said Garry Mackrell, the head of the Commonwealth's international financial services division, told the Herald.

"China's position in the world is growing enormously and it is just too big to ignore. We believe we need to have a presence."

Further expansion will be governed by the tight market regulations with their different limits on investments in banks, life insurance companies, fund and wealth management operations and the ability to open branches.

In contrast, the Commonwealth has placed Indonesia at the top of the list of four countries in Asia on which it will focus its regional growth in the short term.

Indonesia has far fewer barriers to investment, which has allowed the Australian group to own 99 per cent of a leading regional bank, the same size stake in a funds management company and 80 per cent of a life insurer.

Its Indonesian interests had grown at a "very strong pace", said Mr Mackrell. He said the bank was looking at other opportunities to expand in the country. This could include possible mergers.

Vietnam and India are the two other target countries, with India offering the best long-term hopes for growth, alongside China. "If you look at India, it is an emerging giant," said Mr Mackrell.

The Commonwealth has a representative office in Bangalore and has applied for a branch licence, but the regulatory system is a lot tighter than in China.

© 2008 Sydney Morning Herald

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