Shenzhen Development Bank (SDB) announced yesterday to introduce GE Consumer Finance (GECF) as its strategic partner to develop a consumer finance business in China.

 

Under an agreement signed by the two sides, GECF, which is the consumer lending unit of General Electric Co, will acquire US$100 million of the bank's newly issued shares at 5.247 yuan (65 cents) apiece.

 

After the deal, GECF and US-based Newbridge Capital LLC will together own up to 24.99 percent of the bank, the maximum foreign ownership allowed in a Chinese bank. Newbridge is now the bank's biggest shareholder with a 17.9 percent stake.

 

In addition to the equity investment, GECF also agreed to cooperate with SDB to provide expertise in retail consumer finance, including management expertise, risk processes, product development and systems, according to an announcement made by the bank.

 

But the transaction is subject to approval by Chinese regulatory authorities as well as SDB's shareholders.

 

"GECF's investment will help plug capital shortfall of SDB," said She Minhua, analyst with China Securities. "With the money and the bank's efforts to generate more profits to replenish capital, the bank's core capital adequacy ratio is very likely to jump to over 4 percent this year, which will make it eligible to issue subordinate bonds."

 

At the end of June, the ratio stood at 3.14 percent.

 

Moreover, joining of GECF will help introduce top-quality clients to the bank. Globally, GECF has more than 118 million customers and more than US$151 billion in assets.

 

"That is in line with SDB's new strategy to build itself as a leading retail bank in China," he said.

 

Jeffrey R. Williams, president of SDB, also said that expanding the retail banking business is an important part of the bank's strategy. Currently, retailing business accounts for about one-fourth of the bank's total revenue, he said in an earlier interview with China Daily.

 

"The alliance with GECF allows us to grow the business more quickly with a world-class partner known for its consumer finance offerings and strong global risk management standards," Williams said in a press release yesterday.

 

SDB's Chairman Frank Newman also said the cooperation further builds on the bank's strategy of combining the best local talent with the best international expertise to create a premier Chinese financial institution.

 

For GECF, SDB is an ideal partner in China to complement its global experience as a leading provider of retail banking and consumer finance products and services.

 

"China represents an exciting long-term growth opportunity for our financial service business," said Steve Bertamini, president of GE Capital Asia. "SDB has national distribution, a commitment to growing their retail business and an experienced management team."

 

(China Daily October 22, 2005)