Banks seek Far East foothold in global credit market

2nd June 2008, Comments 0 comments

Banks in Spain are increasingly turning their attention to Asia and Latin America to diversity their income streams.

2 June 2008

SPAIN - Facing mounting problems at home, Spain's banks are increasingly turning their attention to Asia as they seek to diversify their income streams.

The boldest so far has been La Caixa, Spain's biggest savings bank and third-largest financial group, which is using its holding company Criteria to spearhead its march east. Criteria listed on the Spanish stock market in October 2007, and barely a month later announced its first big move: a plan to buy a 9-percent stake in Hong Kong-based Bank of East Asia.
It was Criteria's first big operation in the region, and, group officials say, it will all but certainly not be its last.

A year before, BBVA, Spain's second-biggest bank by assets, had already made the move eastward. The bank chaired by Francisco González had carried out the largest ever operation by a Spanish financial group in Asia with the purchase for EUR 989 million of 4.9 percent of Citic, a Chinese retail bank, and 15 percent of its Hong Kong subsidiary.

BBVA's intention had been to increase its stake in the parent to 10 percent and in the affiliate to 30 percent although those plans were put on hold at the start of this year for "technical reasons."

Nonetheless, Spanish banking interest in Asia is unlikely to wane. China and India are the world's largest untapped markets for financial products. Their size alone explains their attraction for banking groups like Spain's biggest entities that are facing a slowing, mature market at home and elsewhere in Europe.

Analysts predict that within a matter of years, China and India will be the three biggest financial markets in the world, along with the United States.

Asia also offers Spanish banks a chance to diversify away from their traditional investment focus on Latin America. That said, they have not turned their backs on the Western Hemisphere entirely, particularly when it comes to investing in one of the other fast-developing BRIC countries: Brazil.

Santander, Spain's biggest bank, took part in the takeover of Dutch lender ABN Amro in 2007, not because it was interested in entering the Dutch market but because it wanted the bank's Brazilian assets. By acquiring Banco Real as part of the deal in addition to Banespa, which it already owned, Santander now controls 12 percent of the Brazilian banking sector.

The group paid EUR 10 billion for Banco Real, but in the eyes of Santander Chairman Emilio Botín it was money well spent.

"There is no other international bank that has such a prominent position in the BRIC countries as Santander," Botín declared triumphantly at a recent conference.

However, the last of the BRICs, Russia, has so far been largely ignored by Spanish banks, except for a marginal retail presence, despite some inroads being made into Eastern Europe. Criteria, for example, recently held abortive negotiations with a Polish bank, and it is thought to be pressing ahead with investment plans in the region.

It remains to be seen just how far the Spanish banking sector's forays into Asia and Eastern Europe will go. Like other foreign investors they face serious hurdles in the two most tantalizing markets: China and India.

"Entering Asia is not something you do lightly. The markets simply aren't open," notes Alfonso García Mora, an analyst with Analistas Financieros Internacionales.

"China is a communist country. The government has the last word," adds Santiago López, an investment analyst at Crédit Suisse.

[El Pais / Manuel Vicente Gómez / Expatica]

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