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"Golden opportunity" for Chinese lenders in U.S. (3)


08:29, August 01, 2012

"It's inevitable for Chinese banks to go overseas," said Chew. "But it will take quite some time for them to be truly internationalized."

While Chinese banks are seeking opportunities to lend to Western companies, their main objective is to help Chinese enterprises operate overseas, Caplen said.

"As Chinese corporations go abroad to diversify their sources of supply, Chinese banks will naturally follow them," he said.

ICBC's completion in July of its acquisition of an 80 percent stake in BEA USA, the California-based subsidiary of the Bank of East Asia Ltd, paves the way for the Chinese bank to expand its US business. The deal marked the first time the Federal Reserve had approved a Chinese bank's attempt to purchase a US bank.

To Caplen, the deal showed there is "declining US resistance" to Chinese investment.

H. Rodgin Cohen, a partner at Sullivan & Cromwell LLP, the law firm that represented the Bank of East Asia in the transaction, said the purchase of the stake suggests the Fed is more receptive to such investment. But, he added, "nobody knows for sure how receptive it would be" toward future deals.

The Fed recognized that Chinese banks have made progress in a relatively short time, Cohen said.

"The Chinese banking regulatory system is clearly more modernized and Chinese banks now have better performance, in terms of being more consistently profitable and having better asset quality," he said.

And the Fed's approval of the deal does not signal an endorsement of Chinese banks in general, according to Francis Zou, a partner at White & Case LLP, which represented ICBC.

One cause of ICBC's success with regulators was the fact that its New York branch turned a profit within its first year. Also, its loans to some Western companies during the crisis helped the Fed in its decision. But those were not the chief reasons the deal was approved, Zou said.

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