More opportunities in growing market

Updated: 2013-03-29 07:15

By Andrew Moody and Zhao Yanrong (China Daily)

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 More opportunities in growing market

Liu Yagan, chief representative of ICBC Africa, says the African market offers huge growth potential in the long run. Zhao Yanrong / China Daily

African banks represent a better growth opportunity than European and US banks, according to a China bank chief.

Liu Yagan, chief representative of ICBC Africa, based in Cape Town, was responsible for strategic investment in Beijing when the bank bought a 20 percent stake in Standard Bank for $5.5 billion (4.27 billion euros) in 2007.

In the aftermath of the financial crisis, the bank would have had the opportunity to buy a US bank or even a European giant like Royal Bank of Scotland, which had to be bailed out by the UK government, for a knockdown price, if it could have satisfied regulators.

"When I worked for the head office, we made that kind of analysis about investments in Europe or another continent, " he says.

"The European banking industry is very mature and the African banking industry is growing very fast and in a growing market you can find more opportunities."

Liu says the priority was not the sudden opportunity to buy an asset cheap and make a return on the investment outlay but the huge growth potential of the African market, which would prove more profitable in the long run.

"The growth space in Europe is limited but that in Africa is huge so it is a good market to be in," he says.

There has been speculation as to where a Chinese bank might move next if it were to make an acquisition.

Potential targets might include South African financial group Old Mutual's 55 percent holding in Nedbank, one of the largest banking groups on the continent.

If Temasek Holdings, the Singapore state investment company, was to sell its 18 percent holding in Standard Chartered, which has major interests in Africa as well as Asia, it might be attractive to a Chinese bank.

"Banking interests in Africa are pretty well defended," says Michael Power, investment strategist at Investec Asset Management, based in Cape Town.

"Old Mutual could sell Nedbank to a Chinese bank but they would have to offer a lot of money for it. I suppose if Barclays was put into a position where it had to raise capital it could sell Absa to someone but at the moment it is their jewel in the crown."

Qiu Zhikun, chief executive officer of Bank of China Johannesburg branch, says the bank's preferred model was to work alongside African banks but he would not rule out future acquisitions.

"In Africa we never give up on any kind of development strategy," he says.

Voyt Krzychylkiewicz, banks analyst at SBG Securities in Johannesburg, says it is logical for Chinese banks to acquire assets in Africa rather than in Europe or the United States.

"They are possibly not going to Europe and the United States because they don't want to deploy capital there. They want to deploy capital where they see opportunities and that is why Africa is of interest," he says.

(China Daily 03/29/2013 page5)