In October, FinanceAsia named the winners of our inaugural China Awards for best domestic and international ratings agencies, best international and domestic law firms and best borrower overall and Belt & Road borrower.
In a four-part series, we will explain the rationale behind our decisions to award institutions that contributed to the positive development of China's capital markets. This is the second part of the series.
FinanceAsia's China Awards 2018 is organised in collaboration with CorporateTreasurer, our sister publication.
Best Transaction Bank | Bank of China
China’s fourth largest bank by assets has been busy. Committed to overhauling its legacy systems and means of operating, it has been true to its commitment of “enabling advancement through technology” with both immediate impressive growth and long-term strategic planning.
Take the now. Halfway through 2018, Bank of China’s (BoC) recorded mobile banking transaction volumes has increased by 72.7% year-on-year with overseas mobile banking services now available in 17 countries. In step, the domestic outlet coverage ratio of its smart counters reached 93.6%.
At the corporate-client level, it has invested in cash management products targeting “Going Global” enterprises, providing them with greater access to international services, banking channels and trading data.
The major technological emphasis for BoC is right on the money. The bank is pushing the enveloped by entering into real-time analytics, big data, and artificial intelligence in a bid to improve comprehensive customer data analysis and credit risk evaluation.
At the same time it is now working on a major initiative using cloud computing, big data, AI, and blockchain (which it has developed for cross-border payments, digital currencies, and data sharing) to re-engineer the way it does business. The bank plans to invest 1% of its annual operating income in these areas.
Not only setting sight on re-defining traditional transaction banking in China, BoC has pro-actively served the state’s key strategies. For example, it has already participated in more than 600 major projects along the Belt and Road, providing credit support totalling $115.9 billion as of September this year.
Best Cash Management Bank | Bank of Communications
When it comes transaction banking, a winning bank needs to prove it has sufficient scale to merit the major awards. However, scale is not everything. With 3,280 business outlets throughout China it is a decent-sized bank, but what really is impressive is BoComm’s attention to detail and willingness to deliver its customers a highly tailored service, finding innovative ways to enhance its cash management service.
The bank’s development of its cash pooling product suite was particularly impressive. For example, for one of its major Shanghai-headquartered clients it set up a highly efficient structure geared to centralising the company’s many accounts across its subsidiaries with an aim to improve investment returns on the group account balance.
BoComm needed to ensure the pooling element of its solution did not interfere with crucial payments schedules, did not leave local account holders out of pocket, and created investment returns worth the effort of restructuring the account structure.
Clearly BoComm’s client base is a happy one. The cash management business boasts nearly 1 million customers, from SME to state-owned entities including PetroChina, Sinopec, State Grid, China Shipbuilding Industry, Suning, Alibaba and other industry-leading customers.
Its prize-winning “Win-to-Fortune” cash management services have more than 22,00 corporate clients, with approximately 370,000 cash management accounts, as of June 2018.
Best Trade Finance Bank | Bank of China
Bank of China (BoC) has long-established its reputation as the pre-eminent trade finance bank in China. The last 12 months has done nothing to dent this envious reputation.
In the first half of 2018, BoC maintained the largest market share in international trade services against its country peers. According to Greenwich Associates 2018 research, BoC comfortably sits at the top of the tree for trade finance market penetration of Chinese large corporates (66%), with ICBC (50%) and HSBC (47%) following in pursuit.
In terms of product innovation, BoC recently upgraded its data sharing service. In an effort to promote paperless operations and real-time information exchange, the bank incorporated a documents service system into its online banking service. It also provides offering online applications for letters of credit and letters of guarantee.
The bank also announced a strategic partnership with the National Office of Port Administration to develop a financial services function into the “China International Trade Single Window”.
It has also pushed forward with developments to its structured commodity finance business and helped more overseas investors to trade crude oil and iron ore futures in the domestic market.
Safest Bank | Bank of China
Prudence should be a quality that is always associated with banking. Sadly, that has not always been abided by. In the case of Bank of China (BoC), we are pleased to say it is.
The bank’s ability to forecast and provision for its bad loans should act a reminder to other financial institutions that good credit control is possible alongside decent profitability. Recent data shows the group’s outstanding non-performing loans (NPLs) stood at Rmb163.304 billion with its non-performing loan ratio 1.43%, notably lower than its major peer group.
Typically if the level of provisioning covers 100% or more of the actual bad debt expense the bank writes off, then you can say it is relatively accurate and prudent in its bad debt provisioning. As at June 30 this year, BoC’s loan impairment losses to non-performing loans stood at a very healthy 164.79%.
The bank has made decent strides to strengthen credit asset quality management further and promoted ongoing improvement in its credit structure. From a compliance standpoint, BoC is also planning to enhance its well-regarded risk control system, which already monitors millions of transactions to prevent money laundering and other fraudulent activity.
“[BoC] advanced the construction of its risk management information system, consolidated its risk database, improved its risk data governance and proactively promoted the construction of an intelligent risk management system," the bank said in its 2018 interim report.
Best SME Bank | China Merchants Bank
China Merchants Bank (CMB) has long been the champion of China’s SME segment. Its emphasis on being a serious player in digital banking will only go to help serve those with less clout that the country’s traditional state-owned entities.
A shining example is CMB’s recent involvement in a strategic pilot scheme, spearheaded by the People’s Bank of China, launching the “Bay Area Trade Finance Blockchain Platform” focused on Guangdong province, Hong Kong and Macau. It focuses on expanding the availability of trade finance to SMEs. At this stage, it’s open account trade finance, such as factoring and discounting.
Initiatives like this are crucial as they are geared to support smaller companies who struggle to access cheap capital. Chinese auto company BYD is also participating in the pilot scheme. It has up to 20,000 tier-one suppliers, and even more tier-two and three. The latter group are in most need of finance.
From its birth in 1987 in Shenzhen, CMB has spread it roots impressively. By the end of 2017, it boasts more than 70,000 employees, has set up a service network with more than 1,800 branches worldwide, including six overseas branches, three overseas representative offices, and has branches in more than 130 cities of mainland China.
Despite the fact it banks a riskier client base than its commercial banking peer group, CMB’s fundamentals are impressively sound.
Last year it maintained stable asset growth and strong profitability with a profit growth among the highest in the industry, and improved asset quality with declining balance and ratio of non-performing loans. CMB's market value reached Rmb710 billion ($102 billion) at the end of 2017.
Best Working Capital Solution | DBS
Best known as a major player providing modern logistics facilities, GLP is also – unsurprisingly – one of the world’s largest real estate fund manager with assets under management running into the billions of dollars. In China GLP manages a portfolio of 257 logistics parks in 38 cities.
Given its size and scale GLP suffered the natural challenges of running decentralised treasury and finance functions, leading to high operational costs and a relatively high error ratio. Entrustment loan costs were all higher than necessary (highly paper-based) and the company was keen to have greater visibility of daily financials.
Secondly, GLP set up GLP Capital to support its China market expansion. However, this could not support the transfer of overseas capital from offshore to onshore.
With the help of DBS, GLP Shanghai set up a digital banking operation, allowing the logistics provider to centralise all GLP’s daily finance operations. Also, entrustment loans were substituted by the creation of a customizable domestic cash pooling structure.
To solve the offshore capital issue, DBS advised GLP Capital to set up a FTZ version of cross-border cash pooling, lowering financing costs.
“DBS’ China team has proved to be experienced, responding quickly and efficiently to provide help, advice, and useful solutions to ensure the smooth running of our cash,” remarked Henry Wang, treasury manager at GLP Financial Services.
Best Trade Finance Solution | Citi
Shanghai Automotive Group Finance is in the house bank for China’s SAIC group, providing supply chain and cash management services for it. Its business includes providing domestic draft-based supplier finance and cross-border letter of credit settlement.
Citi’s has a strong relationship with SAIC Finance; indeed, it was the first foreign bank to conduct a bank acceptance draft (BAD) portfolio business with it back in 2016. Now, Citi is one of the first foreign banks to promote finance company e-BADs – the electronic version of BAD – in China.
For SAIC Finance, the e-BAD was utilised to back a supplier finance and import letter of credit to support its import L/C settlement and onshore draft discounting by leveraging Citi’s e-draft platform as well as purchasing a portfolio of e-BADs from SAIC Finance.
Best Payment Solution | KVB Kunlun
Similar to Alibaba, DHGate.com is an online wholesale marketplace for goods made in China, connecting international buyers with wholesale sellers. It hosts around 30 million products on its platform.
Because of its fast turnover business model, DHGate.com has very large exposure to it foreign exchange and has to manage an extremely high volume of payments, and all the requisite AP issues that come with.
As such it was in need of establishing a reliable cross-border renminbi settlement channel, a sophisticated hedging strategy, and a way to reduce man hours focused on billing and payments.
Enter KVB Kunlun. Providing a comprehensive settlement and foreign exchange platform, the service provider was able to offer a digital T+0 settlement facility for major currencies, and has the network to settle 129 currencies in total.
DHGate.com also connects to KVB Kunlun’s API system that provides real-time exchange rate data and market data information, helping it to decide when best to transact.
“DHGate.com…began its relationship with KVB Kunlun in 2016 and regularly offers great B2B products…. Its global network has assisted us greatly with faster settlement and much lower foreign exchange costs. Its API system enhanced our transaction efficiency,” said DHGate’s treasurer.
