PICC Buys into A Commercial Bank

The People's Insurance Company (Group) of China Ltd. (PICC) said on October 27 that it had gained approval from the China Insurance Regulatory Commission to buy into Bank of Hangzhou for CNY 390 million.

It is the first time for the group to invest in a commercial bank and via the deal, it will take a not more than two percent stake in the Zhejiang-based city-level commercial lender. The capital will be from the group and the deal will be completed by its capital operation unit.

It is a financial investment, said a top executive of the PICC unit when asked whether it is a strategic move PICC takes to stretch out reach to banking. The group aims to grow into a financial conglomerate and there is great possibility for it to stretch out reach to banking or other financial fields in the future, said an industry expert. So far, it has gained licenses to be engaged in insurance, funds, securities, trust and etc. It is necessary for insurers in China to seek more investment channels in a bid to ensure a stable return on investment, Wu Yan, chairman and president of PICC, said at a forum.

The deal will do good to Bank of Hangzhou, added the industry expert. The bank grew fast in the past few years and is the first city-level commercial lender in the country to file an IPO application. However, for various reasons, it has not gained regulatory approval to be listed till now. It plans to raise about CNY 3 billion via issuing not more than 350 million additional shares, accounting for at most 20.95 percent of the expanded capital stock, this time.

Actually, a list of insurers in the country has cast eye on commercial banks. China Reinsurance (Group) Co. (China Re), the biggest reinsurance company in Asia, has bought into China Everbright Bank. China Life Insurance Co., Ltd. (SHSE: 601628 and SEHK: 2628), the biggest life insurer in China, has bought into Guangdong Development Bank.

Established in September 1996, Bank of Hangzhou has had over 80 branches across the country. Total assets reached CNY 134.5 billion as at the end of September 2009, with loan outstanding and deposit outstanding hitting CNY 79.4 billion and CNY 112.2 billion, respectively. Aggregate profit gained in the first three quarters of this year amounted to CNY 1.32 billion, with net profit touching CNY 1.11 billion.

(USD 1 = CNY 6.83)