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Investment in China Rural Cooperative Bank

Investment in China Rural Cooperative Bank. Gerard van Empel Washington DC, April 2007. Transformation of RCC system. Chosen model in most provinces (two tier model) Consolidate RCC’s and district RCCU into RCB Clean up non-performing portfolio, supported by PBOC notes

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Investment in China Rural Cooperative Bank

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  1. Investment in China Rural Cooperative Bank Gerard van Empel Washington DC, April 2007

  2. Transformation of RCC system • Chosen model in most provinces (two tier model) • Consolidate RCC’s and district RCCU into RCB • Clean up non-performing portfolio, supported by PBOC notes • Typical shareholder/member structure: • Staff approx. 20% • SMEs approx. 40% • Private individuals /farmers approx. 40% • Formation of RCB’s strictly controlled and managed by CBRC • Provincial RCCU approves many operational decisions of RCB

  3. Alternative model chosen by some • One tier RCB at provincial and/or municipal level • Some chose for Rural Commercial Bank (larger shareholders) others for Rural Cooperative Bank (similar shareholders as two-tier model)

  4. Observations • Big difference between rich and poor provinces in terms of structure and stage of transformation • Role of provincial RCCU and RCB needs to be defined • Too much focus for RCB formation on administrative areas and not on market composition • Internal share trading mechanism needs to be developed • Further consolidation expected over time (competition increasing rapidly)

  5. Main figures URCB Total assets 4.5 bln Euro Total loans 1.9 bln Euro Total deposits 2.7 bln Euro Number of outlets 131 Number of staff 1150

  6. Process of Rabobank/IFC investment • MOU three years ago in which basic principles of investment were laid down including multiple • Operational review by Rabobank to determine what processes need to be improved (Technical Assistance) • Financial due diligence auditor • Appraisal IFC/Rabobank • Negotiations and principle approval

  7. Process of Investment • Time between negotiations and closing of the deal nearly one year, due to: • First foreign investment in RCB in China • Approval needed by ZRCU, CBRC Zhejiang and Central CBRC Beijing • Lack of knowledge of the local lawyers of RCB regarding foreign investment

  8. Structure of the investment • Rabobank 10%, IFC 5% • Rabobank has option on IFC 5% share • Rabobank appointed deputy CEO who acts like a change manager • Short term Technical Assistance on module basis like: • Credit risk management • Product development • Product distribution • Etc

  9. Key success factors • Understanding the RCC system and transformation process • Building trust with key decision makers at bank level but also at provincial and regulatory level • Having a good local presence

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