Opinion | ICBC expands in Middle East
ICBC's latest expansion in the Middle East marks a broader international drive that could make the bank a top global player in the next 5-10 years.
For anyone looking at long-term banking plays in China, ICBC certainly seems like a good bet due to its strong focus on emerging markets, trade finance and yuan-related services, three big growth areas where Chinese banks enjoy a strong natural advantage over their western peers. But in the shorter term, ICBC and its other major domestic competitors will have to face more serious problems in their home market that still accounts for the big majority of their business.
China's lenders are now having to deal with a ballooning volume of bad loans as a result of liberal lending under Beijing's four trillion yuan economic stimulus package at the height of the global financial crisis in 2009 and 2010. Beijing is currently helping the banks to cope with the problem through creative strategies like letting them defer collection of loans and giving them extra leeway in the way they define bad loans. But no matter how much they try to disguise or postpone the issue, the problem still exists and will likely show up in the results of ICBC and other major state-owned lenders over the next 2-3 years.
Its opening of branches in Saudi Arabia and Kuwait will allow ICBC to expand into those markets by offering yuan settlement services for the huge amounts of oil that China buys from the region each year. Most oil buying is now done in US dollars, but both Saudi Arabia and Kuwait would almost certainly welcome some purchases using the yuan to diversify their foreign currency holdings as the dollar steadily depreciates. Chinese engineering and infrastructure-building firms are also becoming increasingly active in the Middle East, meaning ICBC's new branches can also help to serve these companies with their activities in those markets.
