By Yi Xianrong (China Daily)
Updated: 2007-07-12 09:36

The author Yi Xianrong is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences

State-owned commercial banks, listed on the Shanghai and Hong Kong stock exchanges, are finding it difficult to find suitable channels to invest overseas the huge capital gained from shareholders.

The markets, which are going through a bull run, have pooled big sums of money into Industrial and Commercial Bank of China (ICBC), Bank of China (BOC) and China Construction Bank (CCB) since their initial public offerings.

To make a better use of the funds, the banks are trying to tap overseas markets and develop international businesses. The goal of becoming an international giant is attractive to any commercial bank, but it involves also heavy pressure and competition.

To penetrate the international market, commercial banks could acquire or merge with foreign financial institutes, create international businesses or offer localized financial services and products.

While it could take a company many years to sell $1 billion worth of products after setting up an overseas branch, it could take a matter of months for a bank to open an overseas branch and give out $1 billion in customer loans.

However, these loans involve various risks, some becoming bad debts not retrievable.

Banks are distinct from other businesses in the market economy. They gain profits from the inflow and outflow of money. Their business relies on credit and risk pricing. Most bank debts can be traded, giving them more leverage to influence the economy.

Given this uniqueness, the banking business is based on calculations about credibility and risk instead of a material substance.

However, there have been occasions where the economy of a country has been badly hit through the bankruptcy of a lender. Hence, administrations always keep a close eye on the banking sector.

All these factors make it tough for any bank thinking of setting foot overseas.

The advantages, however, are also numerous for the State-owned commercial banks.

By learning advanced management systems of foreign banks, they could sharpen their own competitive edge, find new sources of profit and grab large shares on the global market.

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