China Development Bank (CDB), one of the country's three policy lenders, is planning to expand into financial leasing to diversify its business as it tries to transform into a commercial bank.
The lender is ready to acquire Shenzhen Financial Leasing Co Ltd for 7 billion yuan, taking a 90 percent stake in it, industry sources said.
The cash injection is expected to make the new company the largest financial leasing company in the country, according to a report of the Shanghai Securities News.
The leasing company will be mainly engaged in aviation leasing and leasing of large equipment and hi-tech facilities. It will also focus on leasing of traffic, energy and telecom equipment.
Established in 1999, Shenzhen Financial Leasing Co has earned license for financial leasing for more than nine years and has good assets quality and leasing business system. This can help CDB easily expand into the new area, analysts say.
Financial leasing can help improve banks' lending and profit-earning structures and diversify their revenue sources; it can also help enlarge banks' client bases, they say.
CDB plans to grow the leasing business into one of its major revenue sources and scale up the capital of the leasing company to 80 billion yuan in three to five years.
Currently Hainan Airlines Group and Xi'an Aircraft Industry (Group) Co are the two largest shareholders of the leasing company, holding a 21.66 percent and an 18.16 percent stake in the company.
The banking regulator issued new rules last March permitting commercial banks to apply to set up directly controlled financial leasing companies.
To diversify revenue sources, the financial leasing business is becoming increasingly attractive to commercial banks. Ever since the regulator lifted the ban on commercial banks to invest in it, the country's leading lenders have established financial leasing units.
In September, Industrial and Commercial Bank of China, the country's largest bank by market value, got the green light to set up a financial leasing company in the Binhai New Area of Tianjin, an economic center in North China, with a registered capital of 2 billion yuan.
The same month, China Construction Bank was approved to jointly establish a financial leasing company with Bank of America.
Bank of China entered the financial leasing business by acquiring Singapore Aircraft Leasing Enterprise for $965 million in 2006.