Bank of Communications (BOCOM), China's fourth-largest lender by market value, may launch its own insurance unit as early as this year as part of its efforts to become a financial conglomerate in the long run, sources said.
The bank plans to buy a stake in China Life-CMG Life Insurance Co, an insurer now 51-percent owned by China Life Insurance, Dicky Yip, vice-president of the bank, said in Shanghai yesterday, but declined to reveal details of the deal.
The move echoed earlier market rumors that a slew of major Chinese lenders, including China Construction Bank and Industrial and Commercial Bank of China, are eyeing stake buys in the nation's insurers in a bid to diversify their financial services portfolios.
"A more diversified business portfolio is in line with the international trend, as it could make banks less vulnerable to fluctuations in the industry," said Liu Jun, a banking analyst with Changjiang Securities.
"Banks are also upbeat about the insurance industry's growth potential, which could become their new source of income," he said.
There were rumors in April that BOCOM would acquire a stake in China Life-CMG Life Insurance Co, a Shanghai-based joint venture between China Life and Commonwealth Bank of Australia.
Given the limited scale of the insurer, the bank may have targeted other insurers then, Liu said. It may also seek to get a foothold in the securities business in future, he said.
Fu Lichun, an analyst with Southwest Securities, said the bank could generate better synergy through diversifying into other financial sectors.
"Given the sound customer base and wide retail network that the bank boasts, the cost of developing its insurance business is quite low," he said.
Given Shanghai's aim to turn itself into a global financial center by 2020, the Shanghai-based Bank of Communications has more reasons to step up efforts to transform itself into a comprehensive financial firm, even if it is not the very first to do so.
In a high-profile deal in early June, Ping An Insurance (Group) announced it was buying a controlling stake in Shenzhen Development Bank (SDB), initiating its ambitious goal to become a comprehensive financial supermarket offering a wide range of services under one roof.
The tie-up is still awaiting regulatory approval, which could take several more months, adding to concerns for other Chinese financial firms that seek to undertake such cross-sector acquisitions, analysts said.
"Many of them are adopting a wait-and-see attitude. If the Ping An-SDB deal gets approved, it may spur a wave of applications for such acquisitions," Fu said.
(China Daily August 13, 2009)
