CITIC Bank is ready for an ambitious, consumer-oriented business expansion after receiving an enormous capital infusion from its parent group
Late last November, the CITIC Industrial Bank, a Beijing-based lender, stepped up its internal restructuring process after being given the green light from the China Banking Regulatory Commission (CBRC), the nation’s banking watchdog, to change its name to China CITIC Bank. The “Industrial” in its original name was abolished to reflect its changing profile, signifying its transformation into a retail-centered bank.
On December 1, 2005, the bank launched its business expansion program under a new logo.
The past year has turned out to be a significant one for the CITIC Bank. It was listed among the 200 largest banks worldwide with $2.376 billion in “Tier 1” capital, according to UK-based Banker magazine. It ranked 152nd with $62.203 billion in total assets. Among the 19 Chinese mainland commercial banks in the list, the CITIC Bank ranked seventh and was in third place among joint-stock lenders.
In the money
Going beyond the symbolic move of changing its name and logo, the CITIC Bank, a wholly owned subsidiary of the CITIC Group (formerly China International Trust and Investment Corp.), is spreading its wings in the wake of receiving a cash injection of 9 billion yuan ($1.12 billion) from the parent company, China Daily reported, quoting the bank’s president, Chen Xiaoxian.
It added that the capital adequacy ratio was significantly improved to reach 8 percent, the minimum required by the Basel Capital Accord reached by international banking managers.
CITIC Group sources confirmed that it had won approval from the CBRC to issue bonds worth $1.1 billion to boost the capitalization of the CITIC Bank prior to the lender’s expected initial public offerings later this year.
Of the 9 billion yuan issue, 4 billion yuan ($500 million) would be in 20-year bonds with a fixed rate of 4.6 percent, while the remaining 5 billion yuan ($620 million) would be in 10-year bonds. Moreover, if it is necessary, the bank will also issue subordinated bonds to replenish its capital base.
In addition, the group will also make a capital injection through the bulk purchase of the bank’s non-performing loans in order to substantially improve the lender’s core capital position.
By the end of 2005, the CITIC Bank’s non-performing loans totaled 18 billion yuan ($2.25 billion), accounting for 5.8 percent of its total outstanding loans, above the average 5 percent for joint-stock banks and well above the 3 percent for listed banks.CITIC Group General Manager Kong Dan pledged that the group would return the bank’s profits to increase its capital adequacy.
By the end of October 2005, the CITIC Bank reported its deposits totaled 507.02 billion yuan ($63.4 billion), up 27.3 percent, while the profits were impressive, reaching a record high of 5.88 billion yuan ($735 million), up 33 percent year on year.
Eyes on retail businesses
The CITIC Bank is one of China’s rising banks, focusing on innovation and reform.
As early as 1987, when it was established, Rong Yiren, former Vice President of China and Honorary Chairman of the bank, put forward “to establish the bank as an innovation-oriented lender with distinctive programs and up-to-date financial practices.” For the 18 years of development, the bank has always been keeping in line with that principle.
In recent years, as the full opening up of the banking sector is near, which is scheduled at the end of 2006 under China’s World Trade Organization membership commitments, industry-wide restructuring has accelerated. Thus, competition among China’s commercial banks is increasingly fierce. Since foreign banks will be granted unlimited access to the Chinese mainland market, domestic banks are under great pressure and facing unprecedented challenges.
In addition to maintaining its competitiveness, the CITIC Bank is making persistent efforts to optimize its capital structure through issuing subordinated debts and increase its capital strength to help guard against operational risks.
According to CITIC Bank President Chen, “The ongoing restructuring paves the way for the bank’s transformation into a retail bank, and its plan to be listed on the stock market.”
“After intensive analysis on internal advantages and external market demands, the bank is shifting to personal banking businesses by focusing more on its credit card business and financial planning services for VIPs,” he added.
According to bank data, the number of users of its STAR credit cards hit a milestone last year, topping 1 million.
Nevertheless, the bank’s goal is to expand its retail banking to over 20 percent of its total business volume, twice the percentage of most other domestic commercial banks. Insiders predict that the bank’s retail businesses will likely reach 100 billion yuan ($12.5 billion) in three years as it gains market share.
Preparing to go public
Though the bank has not yet set a date for initial public offerings, President Chen said the flotation looms large in 2006, and the bank is in discussion with international financial institutions and strategic investors, including well-known foreign banks and private funds.
“We are contacting leading banks, such as Citibank and Standard Chartered, as well as other private funds, and it is still undecided if the bank will be listed on Hong Kong or domestic stock markets,” Chen noted.
Regarding the criteria for selecting the most appropriate investors, Chen said the decision would be based on the bids offered by foreign investors. “It will be the one most favorable to the CITIC Bank to secure the interest of our shareholders,” he added.
CITIC Bank
The CITIC Bank, established in February 1987, is a full-service, internationally oriented commercial bank. Its network comprises more than 400 branches nationwide, and includes correspondent relationships with more than 900 banks and their branches in 80 countries around the world at the end of October 2005.
CITIC Group
The CITIC Group was established October 4, 1979. It now owns 44 subsidiaries (banks), including those in Hong Kong, the United States, Canada, Australia and New Zealand. The company has also set up representative offices in Tokyo, New York and Frankfurt. CITIC’s core business ranges from financial industry and industrial investment to service industries. By the end of 2004, CITIC’s total assets stood at 701.41 billion yuan ($84.81 billion) with an after-tax profit of 1.78 billion yuan ($215.24 million).