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Fuzhou-based Industrial Bank Co, which is 24.98 per cent-held by overseas investors, relabeled the outlets of former Foshan City Commercial Bank with its own name yesterday, completing the first acquisition of a city bank by a joint-stock bank in China.
Without any previous outlets in Foshan in South China's Guangdong Province, Industrial Bank became the largest joint-stock bank in the city in terms of the number of outlets, following the four State-owned commercial banks, analysts said. The bank now has 10 outlets in the city after consolidating the 24 outlets of the Foshan bank.
Industrial Bank acquired only the pass-grade loans of ailing Foshan City Commercial Bank, which refers to the top grade under the five-grade loan quality classification system, and other "effective" assets, receiving deposit liabilities. The spokesman of Industrial Bank declined to disclose the cost of the transaction yesterday.
The bank received 3.42 billion yuan (US$412.52 million) in assets and the same amount in liabilities, according to an announcement previously issued by the bank, the Foshan Bank and the State-owned asset supervision and administration commission of the Foshan municipal government.
The loans of the Foshan bank of poorer quality were transferred to a company affiliated with the Foshan State asset administration after nearly a year of negotiations.
Founded in 1997 by consolidating seven urban credit co-operatives in Foshan, the Foshan bank was controlled by the municipal government with more than 50 per cent interest.
It had been operating with difficulty and relatively high risk due to reasons ranging from small size and inadequate management, to high non-performing loan ratio, Industrial Bank said in a statement.
The deal is highly significant in that it explored a way for financial reform and safeguarding financial stability, the bank said. China's banking authorities are encouraging restructuring and consolidation of city commercial banks.
It is also an important step in Industrial Bank's network expansion in the Pearl River Delta, the Industrial Bank said.
As it is trying to become the third largest city in Guangdong, Foshan posted 16.1 per cent annualized growth in gross domestic product last year, which stood at 138.14 billion yuan (US$16.64 billion).
Outstanding deposits at financial institutions in Foshan increased by 22 per cent year-on-year to 294.96 billion yuan (US$35.54 billion) and outstanding loans by 24 per cent to 197.21 billion yuan (US$23.76 billion) last year.
The acquisition came as Chinese banks are strengthening themselves before the full opening-up of China's banking sector in 2006 and as Industrial Bank is preparing for an initial public offering (IPO) amid IPO plans of some other Chinese banks.
The depositors of the former Foshan bank will all become depositors of Industrial Bank, which will upgrade the computer system of the acquired bank.
Founded in 1988, Industrial Bank runs 275 outlets in 25 Chinese cities, with total assets of 294.2 billion yuan (US$35.45 billion) at the end of last June.
Outstanding deposits amounted to 246.4 billion yuan (US$29.69 billion) and outstanding loans to 195.9 billion yuan (US$23.6 billion) at the end of last September.
The bank generated pre-tax profits of 2.22 billion yuan (US$267.71 million) in the first nine months of this year.
Its overseas shareholders are Hong Kong's Hang Seng Bank, Singapore's government investment vehicle GIC Special Investments and World Bank's private sector arm International Finance Corp.
(China Daily December 7, 2004)
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