Industrial Bank Co., Ltd. (601166-SH)

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Sean Hinton

Industrial Bank Co., Ltd. is one of China's largest commercial banks, with outstanding loans of $71.8 billion (¥489.9 billion) as of December 31, 2008.^[1] Industrial Bank offers personal, corporate, and institutional clients an array of financial services, ranging from checking accounts and credit cards to underwriting services and bond issuance.

Despite global economic turbulence caused by the 2008 financial crisis, Industrial Bank increased its net revenue and net income by 34.7% and 32.6%, respectively.^[2] Industrial Bank has benefited both from the relative strength of the Chinese economy and from moves by the Chinese government to protect the domestic economy. In 2008, the bank's ratio of nonperforming loans to total loans fell to 0.83%;^[3] for reference, Citigroup's nonperforming loan ratio more than doubled from 1.15% to 3.21% during the same time period.^[4]

Business Overview

Founded in 1988, Industrial Bank Co., Ltd. originally operated primarily in Fujian Province in the southeastern part of China. Since then, Industrial Bank (often abbreviated as IB) has expanded across the country, establishing 40 branches and over 440 sub-branches in main Chinese cities including Beijing, Shanghai, and Shenzhen.^[5] Though IB itself does not operate outside the Chinese market, it uses its professional relationships with foreign banks to give domestic clients access to financial services in other countries.

Business Segments

• Institutional Business
  • Corporate Banking serves over 147 thousand business customers, providing loans, taking deposits, and offering transaction-related services like foreign exchange settling and customer billing. ^[7]
  • Institutional Banking includes services provided to institutional clients, primarily other banks. Through cooperative agreements, Industrial Bank offers access to its services, which institutional clients can then offer to their customers.^[7]
  • Investment Banking underwrites debt for non-financial firms. In 2008, Investment Banking underwrote and issued short-term bonds valued at ¥29.93 billion RMB.^[8]
• Retail Business provides individual and small business customers with traditional retail banking services like savings and checking accounts, loans, credit cards, and wealth management.^[8]
• Asset Management
  • Treasury Operation Business manages the company’s proprietary investments.^[9]
  • Asset Custody Business manages investments for clients. Despite economic turbulence resulting from global market conditions, Industrial Bank increased its assets under management by over 40% during 2008, coming to ¥26.126 billion RMB at year-end.^[9]
• E-banking and Information Technology provides clients with electronic access to Industrial Bank's services. As of year-end 2008, the company had:^[9]
  • over 35,000 corporate online banking customers (up 35% from the beginning of 2008)
  • over 1.6 million personal online banking customers (up 105%)
  • over 2.7 million telephone banking customers (up 207%)
  • over 538,000 mobile banking customers (up 372%)

Trends and Forces

Government policies aim to increase demand for loans

In the face of deteriorating conditions in the global economy throughout 2008 and into 2009, the Chinese government implemented its own policies aimed at stimulating its economy and protecting domestic firms from the negative effects of the crisis. On May 31, 2009, the country's State Council issued a notice lowering the minimum capital proportions for fixed-asset investment projects; essentially, businesses looking to invest in certain industries won't have to put up as much cash upfront, allowing them to borrow a larger percentage of the total cost.^[11] Policies such as this are intended to spur local governments to invest in the development of new areas of the manufacturing sector, which is the largest source of the country's GDP.^[12] By allowing businesses and local governments to borrow more, these policies also help Industrial Bank and other business lenders who benefit from the increase in new loans.

Heavy domestic focus proving beneficial in global economic crisis

Despite the effects of the 2008 financial crisis on many of the world's economies, Industrial Bank's net income for the year rose by nearly 33% from 2007 levels.^[2] In the same year, the total value of IB's loans and deposits grew by 24.8% and 25%, respectively, while its ratio of nonperforming loans actually decreased.^[13] IB operates solely in China, conducting its limited international business indirectly through partnerships with foreign firms. As such, IBC's performance is determined primarily by conditions in the domestic market. The 2008 global economic downturn affected China to a much lesser extent than many other countries. Despite a decline from its real GDP growth rate of 13% in 2007, China's GDP still grew by a healthy 9.8% in 2008 in spite of slowing export growth.^[12] On June 1, 2009, the China Federation of Logistics & Purchasing reported that its Purchasing Managers Index (which measures spending in the manufacturing sector as a reflection of the overall economy) for the month of May was 53.1, indicating continued growth in backbone of the Chinese economy.^[14]

Competition

Since Industrial Bank Co. operates solely in Chinese markets, its competitors include other commercials banks within the country.

• Bank of China is one of the largest state-controlled banks in China, and, with branches in 27 foreign countries, the most international. Government agencies own over 70% of Bank of China's stock.^[15]
• Industrial and Commercial Bank of China is the largest of the state-controlled banks by both revenue and assets and is a major player in the Chinese commercial banking industry.
• Shanghai Pudong Development Bank offers commercial banking services across China, though its business is focused on its home city of Shanghai. In 2008, Industrial Bank Co. earned 10.3% and 13% of its net revenue and operating income in Shanghai, putting it in competition with SPDB.^[10]
• China Construction Bank is the fourth-largest of China's state-controlled banks by assets.

References

1. ↑ Industrial Bank Co., Ltd. Financial Statements - Reuters.co.uk
2. ↑ ^{2.0 2.1 2.2 2.3 2.4 2.5 2.6} Industrial Bank Co., Ltd. Annual Report 2008, page 98
3. ↑ Industrial Bank Co., Ltd. Annual Report 2008, page 15
4. ↑ Citigroup (C) 4Q2008 Financial Supplement, page 32
5. ↑ History and Profile - Industrial Bank Co., Ltd.
6. ↑ ^{6.0 6.1 6.2} Industrial Bank Co., Ltd. Annual Report 2006, page 75
7. ↑ ^{7.0 7.1} Industrial Bank Co., Ltd. Annual Report 2008, page 65
8. ↑ ^{8.0 8.1} Industrial Bank Co., Ltd. Annual Report 2008, page 66
9. ↑ ^{9.0 9.1 9.2} Industrial Bank Co., Ltd. Annual Report 2008, page 67
10. ↑ ^{10.0 10.1 10.2 10.3} Industrial Bank Co., Ltd. Annual Report 2008, page 43
11. ↑ TradingMarkets - Bank Loan Growth Expected to Continue for 3 More Months
12. ↑ ^{12.0 12.1} CIA World Factbook - China - Economy
13. ↑ Industrial Bank Co., Ltd. Annual Report 2008, Introduction
14. ↑ Invest in China - PMI Data Shows China's Economy Maintains Growth in May
15. ↑ ^{15.0 15.1} Bank of China Limited Annual Report 2008, page 2
16. ↑ Industrial and Commercial Bank of China Annual Report 2008, page 5
17. ↑ Shanghai Pudong Development Bank Annual Report 2008, page 2
18. ↑ China Construction Bank Annual Report 2008, page 2
19. ↑ Bank of China 2008 Annual Report Financial Highlights
20. ↑ Industrial and Commercial Bank of China 2008 Financial Highlights
21. ↑ Shanghai Pudong Development Bank Annual Report 2008, page 4
22. ↑ China Construction Bank Annual Report 2008, page 3