The foreign investor-controlled Shenzhen Development Bank (SDB) plans to introduce new global strategic partners and issue secondary debt to boost its financial strength.

 

The Shenzhen-listed lender markedly raised its core capital adequacy ratio to 3.71 percent at the end of 2005 from 2.32 percent a year ago, according to the newly released annual results.

 

"Although it's still below the 4 percent required by the China Securities Regulatory Commission (CSRC), it's a significant improvement for the bank," Frank Newman, chief executive officer of SDB, said at a press conference yesterday. He attributed the increase mainly to the internal capital generation and balance sheet management.

 

A new deal with GE Consumer Finance (GECF), the global consumer-lending unit of General Electric, is expected to raise the ratio to the required level once it is approved by the regulatory authorities and the shareholders, said Newman.

 

According to the agreement, signed last September, GECF will acquire newly issued shares of SDB valued at US$100 million. The new investor will possibly become the second-largest shareholder of the lender with a 7 percent share, following the largest shareholder, US private equity firm Newbridge Asia AIV III, which holds 17 percent.

 

The bank will leave no more than 1 percent of the shares to the third foreign partner, so as not to surpass the 25 percent cap that foreign firms can hold in financial institutions, as set by the Chinese regulatory authorities, Newman told the media.

 

The result of the agreement with GECF will be announced after the bank's share reform, a scheme to turn the roughly 28 percent of non-tradable shares into tradable ones. The plan is due to be launched at the end of June.

 

The bank later will also consider issuing secondary debt, totaling 3 or 4 billion yuan (US$369.9 million to 493.2 million), to further raise the capital adequacy ratio, Newman said. The ratio stood at 3.7 percent at the end of last year, which was far lower than the required level of 8 percent.

 

A bank in China can issue secondary debt in the form of private placement only after its core capital adequacy ratio reaches 4 percent, according to concerning regulations.

 

The bank's net profit surged 19 percent in 2005 to reach 352 million yuan (US$43.4 million), and both lending and deposits jumped more than 20 percent.

 

The bank will focus its business on retailing business, trade financial service and wealth management this year, Newman said.

 

SDB shares rose 6.3 percent to end the trading day at 6.36 yuan (78 US cents) yesterday, compared with the broad market's 1.63 percent growth.

 

(China Daily April 4, 2006)