Chinese banks are preparing to take advantage of any easing of government restrictions to challenge the likes of Citic Securities Co (中信證券) and China International Capital Corp (中金公司) in the nation’s booming brokerage industry.
Industrial Bank Co (興業銀行) plans to acquire Huafu Securities Co (華福證券), while Bank of Communications Co (交通銀行) wants to purchase Royal Bank of Scotland Group PLC’s (RBS) stake in Hua Ying Securities Co (華英證券), people familiar with the matters said yesterday. They asked not to be identified as the deliberations are private.
The banks’ plans highlight a looming shakeup for China’s brokerages, which numbered 120 last year and have been protected for years by government restrictions on new entrants. Shares of securities firms tumbled yesterday in Chinese stock markets after the industry regulator said banks might be allowed in, while Industrial Bank rallied the most since 2013.
“Brokerages will come under heavy pressure if banks are allowed to enter,” Huatai Securities Co (華泰證券) Shenzhen-based analyst Luo Yi (羅毅) said. “It will lead to cutthroat competition, as banks control most of the financial resources.”
Industrial Bank closed 8.7 percent higher in Shanghai after Bloomberg News reported on its purchase plan. Citic, the largest Chinese brokerage by market value, slid by as much as 4.7 percent in Shanghai before closing down 1.6 percent. News of the Bank of Communication’s plan broke after the market closed.
Asia’s biggest stock market and swelling brokerage profits might be draws for banks that face challenges, including Beijing’s plans to deregulate interest rates, further intensifying competition for deposits. Citic reported a doubling of net income last year.
Chinese brokerages’ assets doubled last year to 4.09 trillion yuan (US$652.93 billion), according to the securities association, as trading volumes reached records.
While the market has fallen this year amid government efforts to rein in an explosion in margin financing, the Shanghai Composite Index remains up 65 percent for the past 12 months.
China’s securities regulator on Friday said that it was studying a proposal to let banks apply for brokerage licenses, without giving any timetable for a decision.
Bank of China Ltd is the only Chinese bank that owns a domestic securities firm, through its Hong Kong-based brokerage unit. Bank of China International (China) Ltd was established in 2002.
Industrial Bank said it is aware of the securities regulator’s announcement and is “studying a related plan,” without giving details. Spokesmen for the Bank of Communications, Hua Ying and RBS declined to comment.
Chinese brokerages accounted for 0.8 percent of China’s 192.9 trillion yuan in financial assets at the end of 2013, compared with lenders’ 78 percent share, according to central bank data.
“Allowing banks to enter the securities business will be devastating to Chinese brokers,” Capital Securities Corp (群益證券) Shanghai-based analyst Zheng Chunming (鄭春明) said. “It may be an exaggeration to draw an analogy to elephants and ants, but that gives you the idea of the impact — the damage to brokerages is significantly more than the benefit to banks.”
Zheng said that the government might be “very, very cautious in giving the approval.”
Industrial Bank and Bank of Communications would probably be among the first banks to take advantage of any opening up of the brokerage industry, China International Capital said in a report. At the same time, such a move is unlikely this year, with the government set to first allow lenders to move into areas such as investment banking, the firm said.
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