Acquisition by Chinese banks creating opportunities for foreign banks: The Boston Consulting Group

19 September 2008

Mumbai: Chinese banks have been pursuing larger, more ambitious M&A deals, says the US management consulting firm The Boston Consulting Group, in a new report, Venturing Abroad: Chinese Banks and Cross-Border M&A, being released today. 

Many deals have involved taking stakes in foreign institutions, says the report. From 1993 through 2005, Chinese banks have made an average of about one cross-border acquisition per year. Most deals were valued at under $20 million. Since then, Chinese banks have made 11 cross-border M&A deals. Five of these were worth at least $1 billion.

"Chinese banks face a range of challenges as they pursue overseas M&A deals," said coauthor Tjun Tang, a  partner in BCG's Hong King office, "but they are moving inexorably toward a more international profile. Their size alone makes them capable of influencing markets, particularly if they can harness the momentum of China's global challengers-dynamic companies that are heading abroad.

"To build strong international positions, however, Chinese banks still need to develop core skills and capabilities," Tang said. "M&A deals can help accelerate this process. In the meantime, the surge of cross-border M&A by Chinese banks is likely to be more of an opportunity than a threat to foreign banks."

Cash-rich Chinese banks can help foreign banks weather the current financial crisis. Several Western banks have already courted foreign investors. Foreign banks could also look for opportunities to provide Chinese banks with the presence to serve their globalising customer base.  "Chinese banks want true partnerships," said coauthor Holger Michaelis, a  partner in BCG's Beijing office. "They are not just looking for ways to spend their capital. They're searching for ways to acquire new capabilities, enhance their offerings, and leverage their emerging-markets skills."

In addition, Western banks, particularly those that have been hit hard by the crisis, might consider selling business lines as a way to free up capital and refocus on core objectives. "Chinese banks have both the capital and the incentive to make such purchases," Michaelis said. "They are not direct competitors-at least not yet-and therefore present a better option for banks seeking to divest business lines."