Australia and New Zealand Banking Group Ltd agreed to buy a 19.9 percent stake in China's Shanghai Rural Commercial Bank for US $252 million, marking its second investment in China.
ANZ, Australia's third-largest bank, bought 19.9 percent of Tianjin City Commercial Bank in the north of the country last December for US $120 million.
But ANZ shares edged down 0.1 percent to A$27.83 compared with a 0.7 percent rise in the benchmamrk S&P/ASX 200 Index, with some investors concerned about the risk associated with overseas forays.
"There are some concerns about the domestic banks going offshore, and probably ANZ because they had problems in the past. So there are some risk concerns," said Steve Robinson, a portfolio manager with Alleron Investment Management.
"But if they do selective acquisitions like this, I don't know what the market's problem is. It provides a growth option for the company," he added.
ANZ shares had rallied to a record peak of A$30.21 earlier this month after it reported stronger-than-expected earnings and issued upbeat forecasts in October.
Large global banks including Bank of America Corp, Royal Bank of Scotland, American Express Co and Allianz have all booked fat profits from stakes in China's three biggest state-run lenders, which have just finished an IPO spree worth more than $42 billion.
China's gross domestic product has grown by an average of 9 percent a year over the past 10 years and banks such as ANZ are moving to benefit from that strong growth.
"This strategic partnership provides the opportunity to play a role in one of the fastest growing banking markets in the world," ANZ's Chief Executive John McFarlane said in a statement.
ANZ has now invested A$796 million in buying stakes in seven banks in Asia, with Shanghai Rural Commercial purchase being the biggest investment.
With two strategic acquisitions, ANZ is positioning itself to benefit from an expected growth in China, where mortgages are forecast to grow by a compounded annual growth of 20 percent between 2003 to 2013. Credit cards are see expanding 54 percent, according to consultants McKinsey & Co.
Last week a Citigroup-led investment team won a US $3.1 billion bid for control for China's Guangdong Development Bank after a year-and-half long bidding process.
Shanghai Rural Commercial Bank is the largest rural commercial bank in China and 17th largest bank by assets. It had 2.5 million retail customers with total assets of about US $17 billion as of June 2006.
ANZ's stake buy values SRCB at US $1.26 billion.
"After three years of business cooperation, ANZ and Shanghai Rural Commercial Bank have established a close relationship which provides an excellent foundation of future success," McFarlane said.
ANZ has the most extensive network in Asia among Australia's commercial banks, but revenues from its Asian businesses account for only 3.2 percent of the bank's total A$10.089 billion in revenues.
ANZ will have two representatives on SRCB's board.
Shanghai Rural's lending grew 19 percent in the 2005 financial year, while deposits grew 11 percent, but ANZ said its reported earnings had been hurt by non-performing loans, which stood at 3 percent of gross lending assets as of June.
Australia's top lender, National Australia Bank Ltd, had looked at Dalian City Commercial Bank and other Chinese banks but it is yet to make any investments. But NAB has said it was looking to expand its wealth management arm into China.
Earlier this year, Commonwealth Bank of Australia Ltd, Australia's second-biggest lender, bought an 11 percent stake in Jinan City Commercial Bank for about US $17 million.
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