Bank of China: Outward bound

Liu Liange, chairman, Bank of China

Bank of China (BOC), led by new chairman Liu Liange, is the most international bank from China, with a presence in 57 countries. Profits generated by operations outside the mainland reached Rmb68.3 billion ($9.5 billion) last year, accounting for almost 30% of the group’s total. 

BOC is regularly one of the top 10 bookrunners in the Asia Pacific G3 bond league tables. Its subsidiary, Bank of China (Hong Kong), is one of the three note-issuing banks in the Special Administrative Region, alongside Standard Chartered (Hong Kong) and HSBC.

The bank also dominates the renminbi clearing market, with 12 offshore renminbi clearing bank licences, or nearly half the total of 25. In 2018 alone, the bank cleared Rmb389 trillion of cross-border renminbi transactions, an increase of 11% from the year before.

Thanks to its global presence, BOC is the go-to Chinese bank for cross-border transactions. This includes a leading role for foreign issuers tapping China’s domestic bond market. The bank assisted offshore issuers such as the Republic of the Philippines and the government of the Emirate of Sharjah in issuing panda bonds. So far in 2019, BOC has underwritten half of the 20 panda bonds issued. Among them are Portugal and Hungary’s sovereign pandas, the first panda bond by a Singaporean issuer and the first Italian panda.

It is also among the top banks when it comes to helping Chinese banks move offshore. BOC leads the effort in helping Chinese companies, and occasionally the government, expand overseas. BOC acted as the joint lead manager and bookrunner of the China’s ministry of finance $3 billion bond in October 2018. It also ranks top in underwriting G3 currency investment-grade bonds for Chinese enterprises.

There are historical reasons for BOC’s international competitiveness. The bank was established in 1912 and served as the central bank for 16 years before becoming the only bank in China allowed to conduct foreign currency exchange business. The bank established branches in London in 1929 and New York in 1936.

It was not until 1979 that BOC separated from the People’s Bank of China, the central bank, and took up the task of regulating the foreign exchange market. In early 1994, BOC turned to becoming a commercial bank with a focus on settling China’s foreign trade.

“In those days, we acted as the borrowing window for China,” BOC’s executive vice-president Sun Yu told Euromoney, Asiamoney’s sister publication in May. 

“But soon our foreign exchange reserves began to grow in the country as well as in the bank, and so the role of treasury began to shift from the borrowing side to the investment side.”

Four decades in the foreign exchange business have made BOC an expert at handling cross-border transactions. But the bank is also a leader in the Chinese domestic market. Although interest income was 71.4% of BOC’s total revenue, while fees and commission income were only 17.3% last year, the bank is keen to enter new markets.

One of the most obvious opportunities for Chinese banks right now is the Belt and Road Initiative, the government’s sprawling and undeniably lucrative attempt to reshape infrastructure investment in much of Europe and Asia. 

From 2015 to 2018, the bank granted more than $130 billion of credit support to countries along the BRI.

In the race to become the best bank that brings the Chinese market to the world, BOC has “won at the starting line”, as the Chinese saying goes. 

But the bank’s unshakeable position in cross-border investment banking and its close alignment with China’s national strategies such as BRI and renminbi internationalization will certainly make it hard for other Chinese banks to catch up.

BOC is at the sweet spot of connecting the world to the Chinese market, a gift that appears to keep on giving. Thanks to its history, it already has relationships with international issuers and investors that other Chinese banks will take years to build up. It is also backed by a large group of domestic clients whose demands are increasingly international. 

BOC is playing both sides and it appears to have mastered the game.