Standard Bank deal gives ICBC strong foothold amid growing foreign trade - analyst

Friday, August 5, 2011

The Industrial and Commercial Bank of China's (ICBC) purchase of an 80% stake in the Argentine unit of South African lender Standard Bank for US$600mn is a strategic move for the Chinese bank, given the growing bilateral trade between the two countries, Marcelo Olguín, chief economist at local financial services group Grupo SBS, told BNamericas.

China is Argentina's second largest trading partner, and Standard Bank Argentina is one of the country's top 10 banks.

The purchase looks attractive for ICBC considering China's increasing demand for food and Argentina's strong position in the global market as a soy bean and cereal exporter, Olguín said.

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ICBC valued Standard Bank Argentina at US$750mn, or 2.8x price to book value. The sale was a fairly good deal for the South African banks, Olguín said, given that the valuation is the same as Banco Galicia's, the highest valuated local bank, but their profitability ratios are quite different.

Banco Galicia boasts a 22% ROE compared to Standard Bank Argentina's 10%.

The two parties announced the deal on Friday and said they would inject US$100mn to fund Standard Bank Argentina's future growth. Standard Bank will retain a 20% stake in the Argentine unit.

ICBC already owns a 20% stake in Standard Bank, South Africa's largest bank by assets. The African lender entered Argentina in 2006 through the purchase of a majority stake in Bank of America's (NYSE: BAC) BankBoston unit.

The deal is subject to regulatory approval and is expected to be completed in the first half of 2012.


The deal marks ICBC's entry into South America, the only continent where it does not operate.

"Argentina is not only the second largest economy in South American market, but also one of the key focus markets for the bank's phased expansion into South America," ICBC said in a press release.

ICBC, one of the world's largest banks by market capitalization, earlier this year announced it was investing US$100mn to open a Brazilian subsidiary and filed for a banking license in Peru in January.