18-03-2008: CIMB to latch on Islamic banking expertise in China expansion

KUALA LUMPUR: Bumiputra-Commerce Holdings Bhd (BCHB) will use its 20% stake in Bank of Yingkou (BOYC) of China as a springboard to expand its business there, particularly latching on its Islamic finance expertise to carve a niche for itself in one of the world’s fastest-growing economies.

Speaking after a signing ceremony between CIMB Group, a wholly owned subsidiary of BCHB, and BOYC here yesterday, group chief executive of CIMB Datuk Nazir Razak said that as an aspiring regional banking group, CIMB’s reach must extend beyond Southeast Asia to global financial centres and large economies.

“Establishing a base in China is part of that strategic thrust,” said Nazir. “China has a very large Muslim population, larger than Malaysia, so we are excited about that as well.”

Interestingly, BOYC is looking to expand to Shenyang — the city in Liaoning province earmarked to be an Islamic finance hub of China.

Just three months ago, BOYC received the approval from the Chinese government to transform itself from a local commercial bank into a regional bank, thereby giving it the green light to expand its services in the Liaoning province.

“With the current push to develop North Eastern China with Liaoning province as a centre, Yingkou is a gateway to this fast-growing region as well as to Mongolia and eastern and central Russia. As a major marine hub, Yingkou Port is one of the 10 largest ports in China,” said Nazir.

CIMB Group is proposing to subscribe for 19.99% stake or 141.2 million new ordinary shares in BOYC for RMB348.8 million (RM156.2 million). The purchase values the entire bank at about US$250 million (RM800 million) or about 1.58 times the adjusted book value of the Chinese bank. The deal once completed will see CIMB emerging as BOYC’s largest shareholder.

On BOYC’s growth strategy, the Chinese bank’s chairman and chief executive officer Liu Qingshan said the strategy is to initially grow in the Liaoning province. But he doesn’t discount the fact that they can still expand into the other regions of China.

“The first step is to expand into the Liaoning province and the next step would be the national level,” he added.
On the possibility of listing BOYC, Nazir left open the prospect.

“We will as usual work with the management and look at various growth options. An IPO (initial public offering) is always a growth option... it isn’t the only one,” he said.

The 19.99% stake is currently the maximum shareholding CIMB can have in BOYC under the present rules. But Nazir doesn’t rule out the possibility to increase the stake, if the regulations permit. In China, a single foreign investor cannot own more than 20% of a local bank while foreign investors can only hold up to 25% equity combined.

BOYC is the leading bank in Yingkou, a city in the Liaoning province. It has the largest market share and assets amounting to RMB13.9 billion as at Dec 31, 2007. For its 2007 financial year, it registered a net profit of RM88.7 million.

In another development, Nazir agreed that the global financial market is going through a difficult period.

“Every time it has bottomed, something else comes to the table. Obviously, measures are being made to make sure that the turnaround is fast. The Fed is doing what it can. But given the complexity of financial products these days, it’s not so easy to determine the full extent of the problems in some of these global financial institutions. And what is important and unusual is that the Fed has determined that an investment bank is a potential systemic risk,” he said.

Just when investors thought the worst was over, last Friday Bear Stearns became the latest casualty among financial institutions in the US following the subprime crisis. In the latest development, JP Morgan is acquiring Bear Stearns.

Meanwhile, on the bank’s issuance of RM1 billion subordinated debt by early April, Nazir said it is part and parcel of the bank’s capital management and could be issued by this month.

He also mentioned that the bank is looking at the possibility of selling off some non-performing loans but did not elaborate further.