Chinese bank assets have grown more than five-fold over the last
decade, dwarfing the 40-50% increase in U.S., Euro Area and Japanese bank assets (Chart 1). Indeed, the latest international rankings
show that four of the top 15 banks by asset size are Chinese— including the world’s largest bank, Industrial and Commercial Bank
of China (ICBC), with $3.1 trillion in assets as of September 2013.
This strong growth in Chinese bank balance sheets reflects not
only domestic lending (growing nearly 15% per year even after the
2009-10 credit boom), but a notable expansion in Chinese banks’
international lending. Some of this expansion has been to support
Chinese firms in international markets. However, the international
brand recognition of Chinese banks has also increased, helping to
diversify their customer base. Furthermore, deleveraging by banks
in developed markets has played into this process, opening more
markets for Chinese banks. The consequences of a greater international presence for Chinese banks are far-reaching, and provide
important support for the internationalization of the RMB. A greater
Chinese presence in syndicated loan markets could help address the
significant infrastructure financing gap seen over the coming decades.
Source: CBRC, FDIC, BoJ, ECB, Bloomberg, IIF
Sharp increase in Chinese banks’ presence abroad
For 2006, the Chinese Banking Regulatory Commission (CBRC)
reported that 11 Chinese banks had 95 branches, subsidiaries and
representative offices in 29 countries and regions (including those in
Hong Kong, Macau and Taiwan). According to the China Banking
Association, Chinese bank assets in these regions and countries
totaled just $227 billion in that year.
In recent years, in addition to their activities in developed countries, Chinese banks have also begun opening more offices in Latin
America and Africa. The CBRC’s 2012 annual report indicates that
16 Chinese banks had 1050 branches, subsidiaries and representative offices in 49 countries and regions—over ten times more than
in 2006. Chinese bank assets in these regions and countries amounted to over $1 trillion (including those from Hong Kong, Macau and
Taiwan). Profits from these overseas branches amounted to almost
$17 billion or 8.6% of total Chinese bank profits. However, the expansion has been limited to a few of the biggest financial institutions: the largest five Chinese banks by asset size have 92% of overseas offices while the top two of these have 80% of overseas offices.
Source: SEC filings, news sources, wires and surveys of loan syndication, Bloomberg,
Dialogic, Thomson, IIF. *credit facility of 360 publicly announced loan deals where the
largest seven Chinese banks were bookrunners/mandated lead arrangers, excluding loans
to companies domiciled in Hong Kong, Macau and Taiwan.
Chinese banks have issued more international loans
Nearly all Chinese banks report their activities in Hong Kong,
Macau and Taiwan as “international.” Therefore, metrics such as the
number of branches abroad, international assets and loans outstanding as reported by Chinese banks tend to overstate the true international presence of Chinese banks. Chinese bank activity in these
regions/countries is of course very significant: for example, Chinese
loans to Hong Kong, Macau and Taiwan constitute 60% of the loan
activity for the only Chinese bank which separates loan data for
these countries/regions from other international lending. However,
international Chinese loans even excluding those made to companies in Hong Kong, Macau and Taiwan are substantial and increasing. According to a sample of 360 publicly announced loan deals,
the seven largest Chinese banks have issued some $440 billion in
Source: SEC filings, news sources, wires and surveys of loan syndication, Bloomberg,
Dialogic, Thomson, IIF. *credit facility of 360 publicly announced loan deals where the
largest seven Chinese banks were bookrunners/mandated lead arrangers, excluding loans
to companies domiciled in Hong Kong, Macau and Taiwan.
loans to companies domiciled abroad (excluding Hong Kong, Macau and Taiwan) since 2000—$370 billion of which have been issued since 2008. In 2013 alone, Chinese international bank loans
amounted to almost $100 billion—a 25% increase over 2012 and
more than 60% over 2011 (Chart 2).
Companies domiciled in the Euro Area and the U.S. were the
recipients of 27% and 16% of these loans respectively, while firms
domiciled in emerging markets received over 30% of these loans.
Russian companies were the largest recipients of these loans followed by their counterparts in the UAE (Chart 3, previous page). In
addition to companies domiciled in major emerging market countries, some companies domiciled in “frontier markets” such as Ghana, Mauritius, Bahrain, Zambia, Nigeria and Pakistan were also
borrowers (Chart 3).
Increasingly diverse customer base
To some extent, Chinese banks are following their domestic
firms overseas—i.e. lending to foreign firms with Chinese parents.
The government’s “Go Global” policy has developed steam in recent years—Chinese overseas direct investment (ODI) expanded
rapidly in 2005-2012, to a total of $402 billion for the period (Chart
4). Generally, Chinese banks support domestic firms abroad by
providing loans, letter of guarantees, settlement in cross-border
trade and other services.
Source: IIF Capital Flows Report, January 2014
However, the customer base for Chinese banks overseas is by
no means limited to domestic players. In addition to Chinese corporates abroad, many large international firms such as Daimler, Nestle, General Motors, De Beers, British Airways and others are
among customers of the large Chinese banks. Among EM firms,
energy companies such as Rosneft, Bandes, Petrobras, Turkmengas
and many others have received loans from Chinese banks.
Support for project finance, more use of the RMB abroad
Recent estimates suggest that some $57 trillion of global infrastructure financing will be needed by 2030. (Chart 5). S&P posits an
annual funding gap of some $500 billion, given budgetary constraints facing governments globally—even factoring in more help
from institutional investors. Chinese ODI has been heavily in infrastructure-related sectors such as energy, construction, transportation.
Increased activity by Chinese banks and other newcomers (e.g. Japan, page 8) may support this ODI and contribute towards addressing this infrastructure funding gap.
Source: McKinsey, S&P
Greater activity by Chinese banks abroad will continue to contribute to greater use of the RMB in international transactions. Indeed,
in 2013 the share of renminbi in world payments doubled, albeit
from low levels (Chart 6), with the RMB over the past three years
overtaking 22 currencies in frequency of use.
(Excerpted from IIF Capital Markets Monitor, February 2014, author: Zeynep Elif Aksoy, [email protected], 1-202-857-3647)
Source: Swift