City commercial bank receives vital capital
German Investment and Development Bank (DEG), a member of Germany's leading bank KfW, poured 30 million yuan (US$3.61 million) into Nanchong City Commercial Bank (NCCB) on Friday, becoming the first foreign institution to invest in a small bank in Southwest China.
DEG will now hold a 10 per cent stake of NCCB. Another German financial institution SIDT also bought a 3.3 per cent stake by injecting 10 million yuan (US$1.2 million) into NCCB.
"The same philosophy helping the private economy in developing areas brought us together at last," Huang Guangwei, NCCB chairman, explained the investment in an interview with China Daily.
Besides, DEG is deeply impressed by NCCB's clear development strategy.
"From the very day NCCB was set up, we are well aware of the situation we face: integration with international practices and the imminent reshuffle of city commercial bank," Huang added. "To gain an upper hand in the increasingly fierce competition, why not seek a foreign investor as early as possible?"
But finding a proper foreign investor for such a small bank in Southwest China is not so easy, Ma Tianjiao, vice-president of Tian Hua Capital, told China Daily.
As a matchmaker between NCCB and DEG, Tian Hua Capital tried almost every prospective foreign financial institution and finally succeeded.
"Despite the geographic disadvantage and small size, NCCB has a rational share structure and quality assets," said Ma. "Moreover, NCCB has an open-minded and enterprising top management."
Established in 2002, NCCB has a sound capital adequacy ratio and low non-performing loan rate. After the investment, NCCB's capital adequacy ratio will drop from 8.04 to over 20, with the bad loans remaining at 3.5 per cent.
"We are in bad need of the top-notch management expertise from DEG, with which we can improve our corporate governance and risk control mechanism," said Huang.
As an important part of the agreement, NCCB will get technical service and suggestions from its foreign partners.
According to Markus tho Pesch, director of DEG, NCCB's open-minded management team is the most appealing factor to them. "Without an enterprising and cooperative team, the investment is not likely to succeed," he added.
Foreign banks' interest in China's city commercial banks dates back to 1999, when IFC took a 5-per-cent stake in the Bank of Shanghai. This bank later introduced a second batch of foreign investors, HSBC with an 8-per-cent stake and Shanghai Commercial Bank of Hong Kong with a 3-per-cent share, at the end of 2001.