Tuesday, August 01, 2006

BMO Pulls Ahead in China Race for Business

Financial Post, Duncan Mavin, 1 August 2006

Bank of Montreal has taken the lead among its Canadian peers in the race to grab a share of China's burgeoning financial services market.

BMO revealed yesterday it has become the first Canadian bank to be given the green light by Chinese authorities to provide banking services in Beijing in the country's own currency, the renminbi.

"In the eyes of the Chinese, this is quite a landmark," said Joseph D'Cruz, professor of strategic management at the Rotman School of Business in Toronto.

Generating material returns from China is still some way off for most foreign banks operating in the country. But China's rapidly expanding economy means it has the potential to be much more significant.

Foreign banks currently account for only 1.5% of US$3.5-trillion of assets in the Chinese banking sector, according to reports.

But the country's banking regulators have committed to the World Trade Organization to liberalize the country's financial services industry and open it up to foreigners, which means banks from around the globe, including Canadian banks, are eyeing a bigger slice of the Chinese banking pie.

Bank of Nova Scotia and Royal Bank of Canada both have offices in China, but the fact BMO now has a strong foothold in the country's capital shows it is ahead of the opposition, Mr. D'Cruz said.

He said the approval to offer full-service banking in local currency is handed out on a city-by-city basis. Other Chinese cities, such as Shanghai, may be significant from a purely commercial sense, but the Beijing approval shows BMO chief executive Tony Comper has been successful in building "guanxi" -- the Chinese concept of trust and mutual advantage -- with key players in the country's government and among regulators, Mr. D'Cruz said.

Mr. Comper, who is expected to leave BMO next year, is thought to made it a priority to get the bank in shape for expansion in foreign markets such as the U.S. and China before the end of his term as chief executive.

He visited China as recently as May, and is a member of the Beijing mayor's International Business Leaders Advisory Council. BMO was the first Canadian bank to hold a board meeting in the country in 1998.

In practical terms, the approval means BMO's office in the Chinese capital can now provide a full range of banking services to corporate customers, such as deposits, loans, trade finance and other capital markets products.

"This is a special privilege that few financial institutions with long histories of business in China have at present," said Yvan Bourdeau, head of BMO Capital Markets.

"We will be well-positioned to form new relationships and forge new business for BMO Financial Group."

China's domestic banking sector is not competitive, which makes it ripe for expansion by foreign banks that are favoured by local regulators, such as BMO, said Kenny Zhang, a senior research analyst at the Asia Pacific Foundation of Canada.

"It is highly likely that customers will move to foreign banks because they have better products, higher service levels, and a good reputation," Mr. Zhang said.