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City commercial banks' nationwide expansion may be risky

By Xu Shenglan (chinadaily.com.cn)
Updated: 2008-07-10 15:51

City commercial banks are increasing capital and issuing new shares for their nationwide expansion, which experts think might compromise their primary business of local loans with smaller firms -- a risky move as the national market is limited and competition is fierce.

Chongqing Rural Commercial Bank is planning to issue 1.5 billion new shares worth about 7.5 billion yuan ($1.09 billion) for expansion purpose. Bank of Ningxia also plans to expand 700 million new shares before 2009 worth about 1.5 billion yuan for financing.

Other banks that are also preparing for expanding new shares include Huishang Bank and Jiujiang Bank in eastern China, and Wuhan Urban Commercial Bank in central China.

Banks which have completed share expansions have begun opening outlets throughout the nation. Recently Bank of Tianjin announced it will open branches in Beijing and Tangshan, and Bank of Ningbo will establish branches in Nanjing and Shenzhen after setting foot in Shanghai and Hangzhou.

"This year, city commercial banks have expanded rapidly; at least seven of them have been approved to open branches in other cities," the Security Times quoted Ying Yixun, an expert on city banking, as saying.

"However, city commercial banks' nationwide expansion may lead to the issue of focusing on distant branches rather than the loan business for local, small and medium-sized firms, which are in shortage of capital and need loans from local banks, making the market a huge potential one."

Li Yongsen is a professor from the Financial and Securities Institute of Renmin University of China. He believes that the overall expansion of city commercial banks may lead to unprecedented, intense competition and increasing uncertainties, especially for the smaller ones.

"Maybe one or two of them have the resources and know-how to expand in other regions of the country, but not all of them," said Li.

"The nationwide expansion means giving up their primary advantages to take the risk of competing in a limited national market. I think choosing a region and focusing on it may be a better option for further development of city commercial banks."