Asian Companies Tap Chinese Banks for Cross-border Expansion, Finds Study
Asian companies hiring new banks to facilitate the international growth of their businesses are turning to local providers for services that have traditionally been the domain of global competitors. Among the biggest beneficiaries of this very recent trend: Chinese banks.
With so much Asian economic growth tied to international trade, it is no surprise that companies are forming new bank relationships outside their own borders. According to the results of the most recent Greenwich Associates Asian Corporate Banking Study, nearly three-quarters of Asian companies report using a network bank in an Asian country other than their home market, up from two-thirds in 2009. The share of Asian companies with a relationship with at least one bank in western Europe increased to 47% in 2010 from 34% in 2009, and the share using a bank in North America increased to 45% from 37%.
At the centre of intra-Asian cross-border commerce is, of course, China, and it is to Chinese banks that companies across the region are turning to as they look to expand operations in the fast-growing market. Chinese banks topped competitors from all other markets in terms of number of new corporate banking relationships over the past 12 months. This rapid expansion of footprint has propelled Bank of China into the ranks of the top five banks overall in terms of market penetration in the region. Bank of China is now cited as an ‘important bank relationship’ by 22% of companies across Asia, up from 17% in 2009 and ranking behind only HSBC (65%), Citi and Standard Chartered Bank (both at 51%), and Deutsche Bank (27%) for 2010.
Other regional banks that are experiencing notable levels of growth are DBS Bank, which has increased its client base by more than half over the past two years, and ANZ Bank, which has moved from being outside the top 15 banks in the region to a top 10 Asian bank in the space of one year. Among banks with smaller regional footprints, China Construction Bank and ICBC also achieved notable gains in market penetration from 2009 to 2010.
The rapid growth of Chinese banking franchises throughout Asia are being driven mainly by foreign companies’ desire to form relationships with Chinese banks to facilitate their business expansions in that country, and Chinese companies’ need for banks to facilitate their own international growth. Eighteen percent of Asian companies now use Bank of China for cross-border banking services, up from just 12% in 2009. Twelve percent of companies use ICBC for cross-border services, up from 6% last year.
Overall, Chinese banks now hold 17% of all corporate cross-border banking relationships in the Asian region. “In past years, many companies found it so challenging to work with Chinese banks that they often hired another global bank to act as an intermediary between their own treasury staff and the Chinese bankers,” said Greenwich Associates consultant Markus Ohlig. “But companies looking for banking services in China should know that Chinese banks have been investing heavily to upgrade their technology platforms and product capabilities – a commitment that has paid off for Bank of China in the form of significant improvements in quality scores from corporate clients.”
Asian Companies Bullish on Credit and Economic Conditions
While the availability and pricing of credit remains a major issue for companies in some western markets, Asian companies say credit conditions are already favourable and continue to improve. Companies are also upbeat about general economic direction. “45% of Asian companies report growing demand for funding for capital expenditures – an indicator that companies in the region are confident about prospects for future growth,” explained Ohlig.
This steady improvement stands in stark contrast to conditions in Europe, where fears about the ongoing sovereign debt crisis have injected uncertainty into companies’ economic outlook, and in the US, where questions about the strength of the economic recovery are causing many companies to keep capital investments on hold.