Business

Friday October 2, 2009

Entry of China’s ICBC bank to boost regional trade

By DALJIT DHESI


PETALING JAYA: China’s largest lender Industrial and Commercial Bank of China’s (ICBC) intention to expand its footprint in South-East Asia has created excitement among local economists and analysts, who say the move will bolster trade and cross-border transactions in the region.

Many agreed that the presence of major Chinese banks in the local market would not only spice up competition in the banking industry but also enhance the local Islamic banking and capital markets.

At the moment, the only Chinese bank operating in Malaysia is Bank of China (M) Bhd.

ICBC, which recently indicated it planned to buy Thailand’s ACL Bank, said emerging markets in Asia would be its key priority for international mergers and acquisitions.

In line with the Government’s financial sector liberalisation plans, it is learnt that some of the Chinese banks, besides their Indian counterparts, were among the top 10 banks in their countries that had expressed interest in setting up operations here.

The deadline for the submission of licence to operate specialised banks by foreign players in certain sectors is slated for Oct 31 and the second batch of submission is by Dec 31. The latter relates to licences to operate up to three world-class foreign banks.

RAM Holdings Bhd chief economist Dr Yeah Kim Leng said it was natural for Chinese banks to set up operations in the country in view of the deepening trade and investment ties between Malaysia and China.

“The entry of Chinese banks will help boost Malaysia’s economy and, in the longer term, accelerate cross-border transactions between the two countries.

“It will be a conduit for more Chinese investment and economic activities and enhance the two-way flow of capital,” he said.

More Chinese investors would be confident to invest here as their interest would be better served with more Chinese banks in the country, he added.

Ernst & Young Malaysia head of assurance practice Abdul Rauf Rashid said apart from boosting trade between the two countries, the move would boost Malaysia’s Islamic finance.

“There have been queries from the company’s clients in Hong Kong, South Korea, Japan and China, indicating interest to tap the Islamic banking and capital markets.

“Malaysia has a lot to offer in terms of Islamic financial services to China and for them to tap the country’s expertise in this area,’’ he noted.

Malaysian Rating Corp Bhd chief economist Nor Zahidi Alias and other banking analysts believe the entrance of Chinese banks will heat up competition in the banking industry.

They also believe it will benefit consumers with the introduction of better management practices, innovation and product differentiation as well as better product pricing.

“The move, however, may erode banks’ margins. The spread between the average lending rates and 12-month fixed deposit declined to 2.34% in August compared with 2.94% in February this year,” Zahidi said.

“That notwithstanding, it is still up to foreign banks to position themselves in the already competitive environment in terms of products and services.”

With more foreign banks in the country, the access to credit could be further improved as borrowers would have more choices for financing, he added.

  • E-mail this story
  • Print this story