Sunday, April 24, 2005

Bank_good or bad to invest in city commercial banks instead of state-owned ones?

Commonwealth Bank of Australia, the nation's largest retail lender, said yesterday that it has bought 19.9 percent shares, near the maximum 20 percent for a foreign investor to hold, of Hangzhou City Commercial Bank in US $78 million. It is the second time for the Australian bank to buy a city commercial bank after it bought 11 percent stake of Jinan City Commercial Bank in Shandong province.

The purchases are explained as many foreign banks' rush into Chinese market before the end of 2006 when foreign banks are allowed to conduct local currency business with individuals. Last month, Netherlands_based ING Groep NV took a similar-sized position in the Bank of Beijing as Commonwealth did to the Hangzhou bank.

Asian Wall Street Journal quoted bank analysts saying Commonwealth looks to have adopted a smart strategy, although it is early to say. But many overseas investors think smaller city commercial banks in China could open a door to China for them and less riskier compared with investing in large state-owned banks such as China Construction Bank and Bank of China.

But city commercial banks in China do have their own problems. The high ratio of bad loan is one of them, while their main attention on short-term profit is another, according to a translated story from English).

Good luck.

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