HONG KONG â Bank of Nova Scotia said on Friday it will buy a near 20% stake in Bank of Guangzhou for about $719 million to expand its footprint in China, the latest to invest in a Chinese bank before its IPO.
Scotiabank expects the deal to add to earnings next year and for the deal to close by December this year, it said in a statement on Friday.
âAsia is a region of strategic importance for Scotiabank and enhancing our investment in China supports our long term growth strategy,â Scotiabankâs president and chief executive, Rick Waugh, said.
Bank of Guangzhou is not publicly listed, but is primarily government owned. It has been looking to list in Shanghai and last year invited bids from foreign investors for a 20% stake.
Many other foreign banks own the maximum permissible 20% stake in second-tier Chinese lenders. For example, Citigroup C.N owns about 20% of Guangdong Development Bank, while ANZ owns 20% of Bank of Tianjin and Shanghai Rural Commercial Bank.
The initial wave of foreign banks investing in Chinese lenders began with global names such as Bank of America and Goldman Sachs buying stakes in top players such as ICBC and China Construction Bank before their IPOs.
Since then, many of the foreign banks have begun unwinding their investments, typically for a hefty profit. For example, BofA made an after-tax gain of about US$3.3 billion when it sold half of its stake in China Construction Bank in August this year.
âThe small-to-medium-sized Chinese banks are probably looking to learn from the business models of these foreign banks,â said Liu Qiao, a professor at Peking Universityâs Guanghua School of Management.
âThe big foreign banks such as HSBC have already bought stakes in the big Chinese banks, so we may see more happening in the second-tier lenders now.â
Scotiabankâs move into China is also the latest foray by a Canadian bank into the worldâs No.2 economy. Rival Bank of Montreal became the first Canadian bank to incorporate in China in November 2010 and has said it wants to focus on wealth management and trade financing.
The 127 foreign banks operating in China saw their overall market share rise to 1.83% in 2010 from 1.7% in 2009, with total aggregate assets of 1.7 trillion yuan, accounting firm PwC said in a report in June.