implications on asian banks · implications on asian banks ... textile source: company data cdfh...

This slide is part of a presentation by China Development Financial Holding Corporation and/or its affiliates (together, “CDFH”) and is intended to be viewed as part of that presentation. The presentation has not been updated since it was

originally presented, and does not constitute a commitment by any CDFH entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.

Paul Yang November 2nd, 2010

The Emergence of China's Banks as Global Players:

Implications on Asian Banks

This slide is part of a presentation by China Development Financial Holding Corporation and/or its affiliates (together, “CDFH”) and is intended to be viewed as part of that presentation. The presentation has not been updated since it was originally presented, and does not constitute a commitment by any CDFH entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.

2

China banks leapfrog in global banking landscape

Source: The Banker Magazine “Top 1000 World Banks 2010 ”

Banks 2010 Ranking 2009 Ranking 2007 Ranking Tier 1 Capital Total Assets

ICBC 7 8 7 91 1,726

Bank of China 14 11 9 74 1,281

China Construction Bank 15 12 14 72 1,409

Agricultural Bank of China 28 24 65 40 1,026

Bank of Communications 49 49 68 23 485

China CITIC Bank 67 67 160 15 260

China Minsheng Banking Corp 80 107 230 13 209

China Merchants Bank 81 87 101 13 303

Industrial Bank 97 117 260 11 195

SPDB 108 137 191 10 238

� In 2010, 84 banks in Mainland China are ranked top 1,000 banks worldwide, accounting for

9% and 25% of tier 1 capital and pre-tax profits of these 1,000 banks, respectively.

Top 10 banks in Mainland China are ranked in “Top 1000 World Banks 2010 ” in terms of Tier 1 capital, US$bn


3

China banks outpaced Japanese banks in the past

decade

Source: The Banker Magazine “Top 1000 World Banks ”

Ranking 2010 2006 2001

1 Bank of America Corp (USA) Citigroup (USA) Citigroup (USA)

2 JP Morgan Chase (USA) HSBC Holdings( UK) Bank of America Corp (USA)

3 Citigroup (USA) Bank of America Corp (USA) Mizuho Financial Group (Japan)

4 Royal Bank of Scotland (UK) JP Morgan Chase (USA) JP Morgan Chase (USA)

5 HSBC Holdings( UK) Mitsubishi UFJ (Japan) HSBC Holdings( UK)

6 Well Fargo (USA) Crédit Agricole Group (France) Sumitomo Mitsui (Japan)

7 ICBC (China) Royal Bank of Scotland (UK) Crédit Agricole Group (France)

8 BNP Paribas (France) Sumitomo Mitsui (Japan) Mitsubishi Tokyo (Japan)

9 Santander (Spain) Mizuho Financial Group (Japan) UFJ Holdings (Japan)

10 Barclays Bank (UK) Santander (Spain) ICBC (China)

11 Mitsubishi UFJ (Japan) China Construction Bank (China) Bank of China (China)

12 Lloyds (UK) HBOS (UK) Deutsche Bank (Germany)

13 Crédit Agricole Group (France) UniCredit (Italy) Royal Bank of Scotland (UK)

14 Bank of China (China) Barclays Bank (UK) Bank One Corporate (USA)

15 China Construction Bank (China) AMRO Bank (Netherlands ) BNP Paribas (France)

� Top 15 banks ranked in “Top 1000 World Banks ” in terms of Tier 1 capital


4

China banks appear to eager to go global now . . .

Source: “China Banker Survey 2009” published by China Banking Association and PricewaterhouseCoopers

The survey of China bankers’ intention to go global, percent of the poll

� Setting up overseas branches & subsidiaries is the most favorable approach for China

bank’s to go global

67

48

3834

Overseas Branches &Subsidiaries

Buy Foreign Companies'Shares

Joint Ventures M&A

Follow their clients

Explore new markets and

business

Develop international

talents, learn financial

innovation and

management skills

Take advantage of US&EU

banks’ deleveraging

Political, diplomatic and

strategic consideration

(e.g. countries with

natural resources)


5

More than 50% China banks offices located in

Asian countries

� The state-owned banks’ overseas subsidiaries and branches by region, number of outlets,

percent of total

Source: Company data

3 50

90 0

411

0

0

0 0

6

5

5

9

110

7

5

5

911

11

24

26

23

1822

22

5647

68

55 5667

Total BOC ICBC CCB BOCom ABOC

Africa Latin America Oceania North America Europe Asia

89 38 22 11 9 9


6

M&A activities are also concentrated in Asia,

primarily Hong Kong & Macao

Bank M&A activities

ICBC � Set up ICEA (JV) with Bank of East Asia (BEA) in Hong Kong in 1998

� Acquired a 100% stake in Union Bank of Hong Kong which was renamed as ICBC (Asia)

in 2000

� ICBC (Asia) acquired a 100% stake in Fortis Bank Asia in 2003

� Acquired a 90% stake in Halim Bank (Indonesia) in 2007

� Acquired a 79.93% stake in Seng Heng Bank (Macau) in 2007

� Acquired a 20% stake in the Standard Bank (South Africa) in 2008

� Acquired a 70% stake in BEA Canada in 2009

� Acquired a 97.24% stake in ACL Bank (Thailand ) in 2010

Bank of China � Acquired 30% stakes of Heritage Fund Management (Swiss) in 2008

� Acquired a 100% stake in SALE (Singapore Aircraft Leasing Enterprise) in 2006 and

SALE was renamed as BOC Aviation

China Construction Bank � Acquired a 100% stake in Bank of America (Asia) in 2006

China Merchant Bank � Acquired a 100% stake in Wing Lung Bank in 2009

� China banks’ successful M&A transactions in recent years


7

Although China banks have increasing presence in

Asia, they are not likely to become truly global

� Primarily serving existing PRC customers. (Japanese banks are actually good proxies)

� Most large Chinese customers are very much still China-focused. Long way from becoming true MNCs.

� RMB is not freely traded. Restricted capital accounts in China.

� Cultural & language barriers.

� Management systems.

� Best opportunities are at home.


8

We expect “peaceful emergence” of China banks

� China banks are not likely to become competitors in the near-to-medium term for local customers in Asian markets.

� Will most likely to focus on cross-border transactions of existing Chinese customers.

� Potential for Asian banks to form partnerships to address cross-border opportunities.


9

Taking Taiwan as an example

� China banks are not competitors for Taiwanese customers

1. An already overly-crowded market

2. Lack company specific knowledge for local customers including credit

history, industry knowledge, etc.

3. Much lower margins than opportunities in Mainland

� Bank of China, Bank of Communication and China Merchant Bank have

applied to set up representative offices in Taiwan after cross-strait

Economic Cooperation Framework Agreement (ECFA) took effect in

September 2010

1. Politically driven

2. Following Chinese customers in Taiwan


10

PrincipalPrincipal

InvestmentsInvestmentsCorporateCorporate

BankingBankingWealth Wealth

ManagementManagementInvestment BankingInvestment Banking

And SecuritiesAnd Securities

Direct Private Equity Investments

Fund andCo-Investments

Mezzanine Finance

Domestic & Overseas Equity Underwriting

Fixed Income underwriting

Capital Markets

Stock Brokerage

Private Client Services

Corporate Loans

Project & Leverage Finance

Corporate Finance and syndication

Venture LendingProject Finance & Development

Case study for forming partnership with China banks

China Development Financial Holding (“CDFH”)

Treasury & TMU

Financial Advisory

Private Placements

Proprietary Trading

Investment Management


11

Optoelectronics, Biotechnology,

Alternative Energy, Consumer Products

& Services

2000’s

1980’s

1970’s

Petrochemicals

Electronics & Computers

Semiconductor &Communications

1990’s

1960’s

Textile

Source: company data

CDFH has played a vital role in Taiwan’s industrial

development

� We provide financing, investment and capital markets services to key corporate customers

since 1959


12

� As Taiwan’s largest investment institution, principal investments consists of roughly

US$2.4bn proprietary capital in 360+ companies. Listed/pre-IPO accounts for one

third of portfolio.

� Since 2006, we complemented our direct investment strategy by committing to 27 first

tier private equity funds across Asia, the US and Western Europe. In addition, CDIB

deployed in excess of US$190mn via selected co-investments with best-in-class GPs.

� Principal investment has generated unlevered return on investment (IRR) > 20% over

the past 10 years.

Principal Investment

� CDIB has been well regarded as one of the best project finance banks in Taiwan

since 1992 due to our years of knowledge on industries and valuable resources.

� While most banks’ margins declined in a falling interest rate environment, corporate

banking division still generated an annualized return on equity for over 10%.

� As asset quality continues to improve, the bank’s NPL ratio hits new low at 0.63% in

June 30, 2010.

� As a perennial leader among Taiwanese securities houses and investment banks,

GCSC were consecutively named ”The best domestic investment bank in Taiwan”

and “The best bond house in Taiwan” by several international acclaimed magazines

including The Asset, Finance Asia and Asiamoney.

� GCSC have completed 200+ underwritings over the past 20 years, representing an

overall market share of 15% which ranks us first amongst market players.

Corporate Banking

Securities

Highlights of major business lines


13

East ChinaEast China

� ≧ 20,000 Taiwanese businesses

� Industry exposure: panel, electronic components, PCB, LED packaging, personal computer system integrators, DSC and etc.

� Portfolio includes: AUO, TPT, Career, Welly Power, Everlight, Lighthouse, SZS, Qisda, Cando, Altek and etc.

South ChinaSouth China

� ≧30,000 Taiwanese businesses� Industry exposure: panel, electronic components,

PCB, LED packing, solder material and etc.

� Portfolio includes: AUO, Simula, Career, Everlight, SZS, Shenmao and etc.

North ChinaNorth China

� ≧ 5,000 Taiwanese businesses� Industry exposure: panel, electronic

components and etc.� Portfolio includes : Chi Cheng, AUO...and etc.

-Beijing -Dalian-Tianjin -Qingdao

-Shanghai-Suzhou -Kunshan- Wuxi

-Guangzhou -Shenzhen-Fuzhou -Xiamen

Most of CDFH’s customers have significant

presence in China


14

Taiwanese corporations operate through virtual

network along industry supply chain

Components ApplicationPanel System Integrator

CCFL/

Backlight

Welly Power (3080)

Forhouse ( 6120 )

PCB/ FPC

IC Substrate

TMT (5480) TPT (8213)

DYnamic (6251) Career

(6153) Chang Wah (8070)

Hinge SZS (3376)

Other

Components

Taihan (1336)、GPM (5443)、Power Tech (3296)、Alpha Imaging (3538)、Shenmao (3305)

Power Cord

/Connector

Hotron (3092)

Well Shin (3501)

Simula (3511)

Case Chi Cheng (3095)

Panel Maker

AUO (2409)

Innolux (3481)

Hann star (6116)

System

Integrator

ASUS (2357)

Qisda (2352)

Wistron (3231)

Mobile Phone

Notebook

Monitor

LCD TV

Inverter Darfon (8163)

Polarizer Daxon(8215)


15

Opportunities for partnership

Paid-in Capital (NT$Bln)

6

� Large enough

companies

whereby China

banks are ready

to provide on-

shore financing

� Smaller suppliers

may not qualify

for the China

banks due to lack

of on-shore

credit history or

asset size

Opportunities Opportunities

for partnership for partnership

Daxon

TMTT-MAC TECHVEST PCB CO., LTD.


16

Opportunities for partnership (cont’d)

Taiwanese SME Taiwanese SME

companies in Chinacompanies in ChinaCDIBCDIBChina banksChina banks

� On-shore RMB financing became

available.

� Reduce overall funding cost

� Customer retention by

extending services to existing

Taiwanese customers in China

� Increase revenues from

segments not otherwise

accessible to China banks

� Offer secured or unsecured

credit guarantees to

Taiwanese companies in China

base on their credit/operating

history in Taiwan

� Make RMB loans to Taiwanese

companies with guarantees by

CDIB

� Lack of asset size

� Little on-shore credit history

� No existing business presence

in China

� No RMB deposits leads to no

RMB lending capacity

� Lack of specific credit

information of Taiwanese

companies

� No or little industry knowledge

IssuesIssues

CollaborationCollaboration

BenefitsBenefits

This slide is part of a presentation by China Development Financial Holding Corporation and/or its affiliates (together, “CDFH”) and is intended to be viewed as part of that presentation. The presentation has not been updated since it was

originally presented, and does not constitute a commitment by any CDFH entity to underwrite, subscribe for or place any securities or to extend or arrange credit or to provide any other services.

Thank You!

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