Switzerland's biggest bank, UBS, will buy a stake worth US$500
million in Bank of China (BOC),
but the terms of the agreement forbid UBS to sell that stake within
the next three years, according to a joint statement issued in
Beijing on Tuesday.
The deals comes hot on the heels of two other agreements in
which Temasek Holdings Ptd Ltd, the investment arm of the Singapore
government, and the Royal Bank of Scotland, each bought 10 percent
stakes in BOC for a total of about 3.1 billion dollars.
Foreign banks have been staking out strategic alliances with
Chinese banks in a bid to gain a foothold in the Chinese banking
sector before it is officially opened to foreign competition in
2006, in accordance with China's World Trade Organization (WTO)
commitments.
Chinese banks have also been encouraged to enter into such
alliances to help build capital and improve internal management
mechanisms.
Pending approval from the relevant government departments, the
deal between UBS and BOC involves their cooperation in the fields
of investment banking and securities.
UBS will share with BOC "technology, experience and expertise"
in the management of operation risks and assets and debts, the
joint statement reads.
UBS investment and strategic ties between the two banks will
push forward mutually beneficial cooperation, a BOC spokesman
said.
Chinese law limits foreign shareholders to a total of no more
than 25 percent equity share in its state-owned banks. Individual
foreign banks can only hold up to 20 percent of shares.
All of China's major commercial banks are planning to sell
shares overseas. The bellwether is China Construction Bank (CCB),
which some Hong Kong newspapers say might go public in Hong Kong
soon.
Last month, Goldman Sachs, American Express Co. and Allianz AG
of Germany reportedly signed a deal to buy a 10 percent stake in
China's biggest bank, Industrial and Commercial Bank of China
(ICBC).
Decades of government-ordered lending have piled up bad loans at
Chinese banks, analysts say. In sharp contrast with their Chinese
peers, famous foreign lenders usually report a non-performing loan
level of 1 to 2 percent.
To address the problem, China set up asset management companies
(AMCs) in 1999 - namely, Huarong, Cinda, Orient and Great Wall - to
manage a total of 1.4 trillion yuan (US$172.63 billion) in
non-performing loans transferred from the state banks.
The Chinese government has also injected US$22.5 billion into
BOC and CCB respectively, and another US$15 billion into ICBC to
help boost their capital bases.
(Xinhua News Agency September 28, 2005)