Citigroup Inc's management control of Guangdong Development Bank (GDB) will be positive for the Chinese lender although a stronger balance sheet was needed for a rating upgrade, Fitch Ratings said over the weekend.

 

"Citigroup's extensive experience in emerging markets and strong brand should facilitate improved corporate governance, transparency, risk management and commercialization," Fitch said in a statement. "However, visible progress in GDB's weak financial profile will be necessary before the bank's current individual 'E' rating can be upgraded."

 

A Citigroup-led consortium last week signed a US$3.1 billion agreement to buy 86 percent of GDB making the US firm the first financial institution to manage a Chinese bank.

 

The deal will give Citigroup and its allies, including International Business Machines Corp and China Life Insurance Co, access to 500 branches to tap a surging growth in loans.

 

GDB has not published official financial results since the end of 2004, Fitch said. At that time the bank's asset quality, earnings and capital were all rather weak with a non-performing loan ratio of 16.6 percent, return on assets a very low 0.03 percent and the ratio of equity against assets a thin 1.5 percent, according to Fitch.

 

"While a formal announcement has yet to be announced on how GDB is to be restructured and how associated losses are to be shared between the bank, the consortium, the provincial and central governments we think a speedy balance sheet cleansing will be key in Citigroup's ability to move forward with its strategy in a timely fashion," the Fitch statement said.

 

The bank was set up in 1988 in southern China's affluent Guangdong Province. It boasts the nation's highest per capita income after Beijing and Shanghai and Zhejiang Province.

 

Citigroup also owns 4.6 percent of the Shanghai Pudong Development Bank and has pledged to boost that to 19.9 percent.

 

(Shanghai Daily November 20, 2006)