Singaporean groups Temasek and DBS are among 10 strategic partners chosen by the state-owned Postal Savings Bank of China (PSBC) in what amounts to a major expansion plan.
The reconstituting of this state-owned bank is a reflection of accelerating financial sector reform, with the Communist Party Central Committee, the Ministry of Finance and China Banking Regulatory Commission (CBRC) all explicitly mandating PSBC to introduce strategic investors and enhance its competitiveness, ahead of an IPO as yet unscheduled.
During the partner selection process, which began in June 2014, PSBC set a goal to “bring in capital, bring in mechanisms, bring in technology, and bring in intelligence”.
At a press conference in Beijing yesterday, PSBC chairman Guohua Li said the intention was “to establish PSBC as a unique, first-class, large retail commercial bank with distinctive core competitive advantages.”
The international institutions selected are UBS, JP Morgan, DBS, Canada Pension Plan Investment Board (CPPIB), Temasek and IFC. Two large domestic SOEs, China Life and China Telecom, have also been chosen, along with Chinese internet companies Ant Financial and Tencent. The external shareholders, in aggregate, account for 16.9% of the bank's enlarged capital.
Chia Song Hwee, head of Temasek’s investment group and co-head of China, told AsianInvestor: “Temasek is glad to have the opportunity to participate in PSBC's long-term growth. We remain confident in the long-term prospects of the Chinese economy."
Although some of the strategic partners preferred to hide behind the strict confidentiality often associated with Chinese ventures, CPPIB said it has invested approximately $500 million (Rmb3.2 billion) for its equity stake in PSBC, while China Life said it had invested Rmb13 billion ($2 billion).
There is a strong element of knowledge transfer in the decision to partner a broad range of investment partners. In the cooperation plan, corporate governance, business transformation and risk management are key focus areas.
Li said PSBC had considered various factors, including cooperation potential, financial strength and brand image in choosing the 10 strategic investors.
PSBC president Lu Jiajin said UBS, JP Morgan, DBS and China Life were selected for their corporate banking and financial markets expertise. “PSBC hopes to learn from their experience and technology, further promote the upgrade of retail business, expansion of corporate business and innovation of financial markets business," he said.
For internet finance and so-called inclusive finance, which funds small start-ups normally excluded from lending by mainstream banks, PSBC selected Ant Financial, Tencent, China Telecom and IFC as strategic investors, and hopes to leverage their expertise in financial technology.
PSBC is focusing on micro-finance in rural areas. It has established an “Internet financing laboratory” to develop technology and product. It has also studied the mature technology for micro finance used by Grameen Bank in India, Bank Rakyat Indonesia and American bank Wells Fargo.
The partners will cooperate on distribution channel expansion, customer development, product innovation and risk management. The strategic investors will support PSBC by holding training lectures, seminars and discussion panels, sending experts and providing internships.
Risk management is a core focus in the face of “complicated international economic and financial dynamics, especially new risks arising from interest rate liberalisation, RMB internationalisation and the integrated operations of commercial banks,” said president Lu.
PSBC selected JP Morgan, Temasek and CPPIB as strategic investors specifically for their expertise in risk management. Lu said: “We hope to leverage first-class international financial institutions’ risk management philosophy, experience and methodologies to establish PSBC as a 100-year bank.”
Nicolas Aguzin, CEO of JP Morgan Asia Pacific, said the firm would provide support and expertise to PSBC as it invests in and introduces new distribution capabilities while further strengthening its risk management processes.
PSBC was formally established in March 2007 as a result of the reform of the original postal savings system established in 1919. It does not yet have an investment banking business or an asset management division, although the bank does have a financial services arm, selling funds, bonds and insurance products.
Its parent company, China Post Group, owns an insurance company, China Post Insurance, and has set up a joint venture fund company, China Post Funds, with Capital Securities and Sumitomo Mitsui Banking Corporation.
PSBC is the largest unlisted bank and the sixth largest commercial bank in China with total assets of Rmb6.8 trillion ($1.05 trillion). It operates more than 40,000 branches nationwide, covering 98% of Chinese rural areas and serving a customer base of over 400 million people.
Its $7 billion capital-raising is the largest private placement by a Chinese financial institution and the largest equity capital-raising by a Chinese financial institution in the past five years.