Australia & New Zealand Banking Group (ANZ), a major international banking and financial services provider, has bought a 19.9 per cent stake in Tianjin City Commercial Bank for US$120 million.
The stake gives the Melbourne-based bank access to a city that is headquarters to the Chinese ventures of more than a fifth of the world's top 500 companies.
As part of the strategic partnership, ANZ will provide Tianjin City Commercial Bank with access to ANZ's intellectual property and technical resources.
This includes a specific programme of technical assistance supported by a US$5 million Future Development Fund to build risk management, retail banking and trade finance capabilities within Tianjin City Commercial Bank.
ANZ will also have seats on Tianjin City Commercial Bank's board.
Fuelled by market potential and the opportunity to expand customer and product bases, foreign banks are poised to double or even triple their growth targets in China over the next three years, according to a report released by PricewaterhouseCoopers last month.
The report said that over 70 per cent of banks surveyed predict an annual revenue growth rate of at least 30 per cent for 2005, which will continue over the next three years.
To further increase market presence, most of the respondent banks would choose organic growth, followed by joining up with a joint stock bank or city commercial bank and then with one of the "Big Four" State commercial banks.
"This is because foreign banks regard their ability to exercise management control as the most critical issue when choosing a joint venture for expansion," explained Mervyn Jacob, partner of PricewaterhouseCoopers.
According to Mike Shi, a partner of Ernst & Young Hua Ming Assurance & Advisory Business Services, investing in smaller banks serves as a touchstone for foreign investors.
"Compared with a bet on the 'Big Four', buying a stake in a smaller Chinese lender is much easier but pays the way for further strategic investment afterwards," Shi told China Daily.
Chinese city commercial banks are also stepping up efforts to bring in foreign strategic investors; the China Banking Regulatory Commission (CBRC), the banking watchdog, has asked them to increase their capital adequacy ratio to 8 per cent by the end of 2006.
With only a year to go, some of China's 113 city commercial banks, such as those in Beijing, Nanjing and Ji'nan, have teamed up with strategic foreign investors, hoping their foreign partner may bring the necessary business know-how and experience.
"By having ANZ Bank as a strategic investor, we can ensure sustainable growth by improving the bank's corporate governance, management skills and business operations," said Wang Jinlong, the president of Tianjin City Commercial Bank.
The bank, China's fourth largest city commercial bank, had 180 outlets and 64.5 billion yuan (US$7.9 billion) in assets by the end of October.