China's Postal Savings Bank prepare for Initial Public Offering

China's post-office savings bank, with 39,000 branches across the country, is making initial preparations to go public.  Postal Savings Bank of China Ltd., China's seventh-largest bank by assets and perhaps the world's biggest by branches, is seeking strategic investors ahead of a planned multibillion-dollar initial public offering in the next couple of years, people with knowledge of the deal said Tuesday.

The bank, whose thousands of branches are in post offices dotted around the country, is seeking both foreign and domestic strategic investors as a first step toward listing.

As a key plank of its drive to overhaul its giant state-owned firms, China is pushing to improve the quality of its banking system and make the country's lenders more accountable and transparent. Going public also helps Chinese banks raise funds at a time when the economy is slowing and bad loans have been on the rise.

Like many of the world's postal systems, China's post offices have served depositors who didn't have access to banks, especially in rural areas, but they have also expanded to offer other basic services such as remittances, micro lending, and even wealth management to the system's roughly 430 million customers. Postal Savings branches are everywhere in China, from desolate rural areas to Beijing and the Tibetan capital, Lhasa.

Its branch network exceeds that of Agricultural Bank of China Ltd. which, with 23,000 outlets has the most among the world's publicly traded banks, according to S&P Capital IQ. The postal bank also has many more branches than U.K.-based HSBC Holdings PLC, U.S. banks such as J.P. Morgan Chase & Co. and Citigroup Inc, and Industrial & Commercial Bank of China Ltd.  ICBC, the country's biggest bank by assets, has about 17,000 branches.

Big state-owned Chinese firms often bring in strategic investors in the early stages as they restructure prior to going public. For instance, Chinese debt-clearing agency China Cinda Asset Management Co. brought in investors like UBS AG and Standard Chartered PLC in 2012 before raising US$2.8 billion in a Hong Kong IPO last year.

All of China's biggest banks by assets, other than policy lender China Development Bank Corp., are already listed, so the job of bringing strategic investors into Postal Savings Bank is likely to be coveted by bankers. A so-called beauty parade, in which bankers make pitches for roles in selling a stake, began two weeks ago, one person said.

Postal Savings Bank couldn't immediately be reached for comment. It is unclear how much of the bank will be listed, when a listing will take place, and if it would go public in both Hong Kong and Shanghai.

Established in 2007, Postal Savings Bank had more than 5.57 trillion yuan (US$897 billion) worth of assets as the end of last year, according to its website. Apart from individual savers in cities and rural areas, it also lends and takes deposits from small and medium-size enterprises.

Since the 2008 financial crisis, when the government encouraged banks to expand lending to fuel the economy, Postal Savings Bank has built up a business as a microlender serving low and mid-income customers. China has used microlending as a tool to develop rural areas, and pull them out of poverty.

"I think the Chinese government will continue to encourage microcredit lending by state-owned banks in order to maintain strong credit growth in China," said Matthew Kwok, chief strategist at China Yinsheng Wealth Management Ltd. Chinese financial institutions issued 1.08 trillion yuan in new yuan loans in June, data from the central bank showed Tuesday, up from 870.8 billion yuan in May.

China began overhauling the banking system and opening it up to foreign investors through listings after the country joined the World Trade Organization in 2001.

Bank of Communications Co., the sixth-largest bank, raised US$2 billion in June 2005, while China Construction Bank Corp., the first of the four biggest Chinese banks to go public, raised US$9.2 billion in Hong Kong in October that year. Bank of China Ltd. followed with a US$11.2 billion IPO in May 2006, while ICBC raised $US$21.9 billion via a dual listing in Hong Kong and Shanghai that October. Agricultural Bank of China Ltd. raised US$22.1 billion in 2010 via a Hong Kong-Shanghai IPO, according to Dealogic.

Apart from Postal Savings Bank, Bank of Beijing Co., one of China's largest so-called city commercial banks, is seeking to list in Hong Kong. The state-controlled bank, which is partly owned by Dutch lender ING Bank NV, has hired Goldman Sachs Group Inc. and Morgan Stanley to handle a US$4 billion-plus Hong Kong IPO as soon as next year, people familiar with the matter said in April

A listing by Bank of Beijing would be the fifth by a Chinese bank in the city since October 2013 and would come despite concerns about rising levels of bad debt at China's banks. Past IPOs have struggled and underperformed the broader market, as investors have kept their distance.

Since October, four midsize banks— Harbin Bank Co., China Everbright Bank Co., Bank of Chongqing Co. and Huishang Bank Corp. have raised a combined US$6.3 billion. Shares of three of the banks are trading below their listing prices, while Harbin Bank is flat compared with its IPO price.

Separately, China Cinda Asset Management, which makes its money from buying bad debt, is trading above its IPO price. The company raised US$2.8 billion in November.

Source: The Wall Street Journal (The article was published on 15/07/2014)

Bandhan Financial, IDFC win banking licences, India Post in the queue.

Differentiated banking will make its debut in India with microfinance player Bandhan Financial Services (BFS) winning an in-principle approval to set up a bank. Infrastructure lender IDFC is the other aspirant to have made the cut, the Reserve Bank of India (RBI) said in a release on Wednesday. The central bank will hold consultations with the government on awarding a banking licence to India Post.

By selecting just two candidates this time around, the central bank would surely have left 23 others disappointed. They could, however, take heart from the fact that RBI governor Raghuram Rajan believes licences should be given more regularly or ‘on tap’ and can try their luck again.

While the need to further financial inclusion — a priority for the central bank — makes an MFI like Bandhan an obvious choice, IDFC’s skills as a specialised lender to the infrastructure space would have tilted the scales in its favour at a time when banks are struggling to recover loans to the sector. As Shikha Sharma, managing director & chief executive officer, Axis Bank, pointed out, “Infrastructure is critical for the country and we need strong and stable institutions to make the build-out happen.” Sharma welcomed the new entrants, saying, “It’s always good to have good competition.”

IDFC, for its part, doesn’t intend to limit its focus infrastructure. Rajiv Lall, chairman, confirmed to FE that IDFC was looking to be a universal bank and to lend across verticals. “We will need to build a branch network but we will not be lending only to infrastructure, we intend to explore other segments as well,” Lall said, ruling out an acquisition.

With more than adequate capital of R2,100 crore and no legacy issues in terms of either outdated technology or too large an employee base, Lall believes building the bank brick by brick is the way to go about it.

RBI’s requirement of 25%.

Chandra Shekhar Ghosh, chairman and managing director, Bandhan, told FE the MFI was ready to roll out a bank in 18 months, adding it had a head start given that 45% of its 2,000 branches were already in unbanked areas vis-a-vis the

With a net worth of R1,100 crore, capital, Ghosh said, would not be an issue, adding the biggest challenging in transforming to a bank was the execution.

Bandhan depends heavily on bank funding, the reason for its high loan rates of around 23%. The reliance on banks, Ghosh pointed out, was preventing it from reaching out further. “Once we have access to deposits, we should be able to bring down our lending rate by at least 10%,” Ghosh said.

The RBI said in its release that its approach in this round of bank licences could well be categorised as conservative.

“At a time when there is public concern about governance, and when it comes to licences for entities that are intimately trusted by the Indian public, this may well be the most appropriate stance,” the central bank said, adding it intends to use the learning from this licensing exercise to revise the guidelines appropriately and move to give licences more regularly, that is, virtually “on tap”.

It will also frame categories of differentiated bank licences, building on its prior discussion paper, and this will allow a wider pool of entrants into banking.

RBI believes that some of those entities who did not qualify in this round for a full-fledged banking licence could well apply in future rounds or could apply for differentiated licences under the proposed framework.

Shinjini Kumar, leader banking and capital markets, PwC India, said, “Directionally, there are enough indications that we are moving to an on-tap licensing regime. One of the challenges with the existing licensing regime is that regulatory opportunity determines market entry rather than business need and preparedness of applicants. One would hope that licensing of these two banks is just the start.

 

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