Dutch courage

The location of the Dutch branch of Industrial and Commercial Bank of China (ICBC) in the country's capital is some indication of the bank's ambition in the country. It's in the center of Amsterdam, near the famous Rijksmuseum and Van Gogh museum, two of the country's must-see attractions, frequented by millions of tourists each year.

ICBC might be the world's largest bank by market capitalization, but it's a relatively late entrant into European banking territory compared with Bank of China (BOC). The bank seems determined to make up for lost time, however.

"We are now in talks to rent the third story of the building, and the branch is considering expanding its financial services and recruiting more staff," Zhang Weiwu, general manager of ICBC (Europe) S.A. Amsterdam Branch, told the Global Times in an exclusive interview in late January.

As the largest branch of ICBC in Europe, the Amsterdam office was opened in January last year, when the bank marked its expansion into Europe by setting up five branches simultaneously.

The Netherlands has so far been relatively unscathed by the eurozone crisis and the country is also China's second largest trading partner in the EU. Zhang believes there is great potential for ICBC to boost its footprint in the country.

"There is less concern about rating risks and potential fiscal deficits or monetary tightening problems here," said Zhang.

Standard & Poor's Ratings Services announced on January 13 it would maintain its top AAA rating for the Netherlands, but that it was cutting the ratings for France and eight other countries in the eurozone, including Spain and Italy.

Growing influence?

Over the past year, local Dutch firms have contributed more than 80 percent in terms of assets and deposits to the branch, according to Zhang, a higher proportion than that enjoyed by Japanese banks even though they have been operating overseas for far longer, he remarked.

China's growing domestic market has been the fundamental factor behind Dutch firms' growing interest in choosing Chinese banks, Zhang pointed out.

The Netherlands has a total of 14 companies on the Fortune 500 list for 2011 compiled by Fortune Magazine, trailing only France and Germany in the eurozone. Many Dutch multinational corporations have a presence in China, such as Unilever, Philips and Shell.

"Chinese banks have been very successful in attracting large multinational Dutch companies to open corporate accounts, as Dutch companies need to do business with Chinese banks in order to be successful in their China markets," said Nico Leerdam-Xie, chairman of Dutch Chinese Young Entrepreneurs.

Despite Chinese banks' growing influence in Europe, and in the Netherlands in particular, experts say greater efforts still need to be made.

"They [Chinese banks] should have come here much earlier. BOC has been here for a longer time, but it is not making much headway," Patty F.Y. Yuen, partner of Yuen Law Firm in Rotterdam, told the Global Times.

BOC was the first Chinese bank to open in the Netherlands, setting up a branch in Rotterdam in 2007.

"ICBC is more ambitious compared to BOC, but generally Chinese banks are still very traditional in terms of products offered to clients. You should provide a diverse range of products. At least so far, they cannot offer services such as e-banking for foreign clients," said Sophia Su, China Team manager of legal firm Houthoff Buruma in Rotterdam.

Chinese banks need to broaden the services they offer in the Netherlands, and also broaden the markets they are catering to, said Simon van Zijll, managing director of Dewin Group, a global investment group focused on outbound Chinese investment.

"Overall, I get a feeling that the Chinese banks are mainly looking at Chinese companies that have activities in the Netherlands instead of looking at this very interesting market of Dutch companies, or European companies who have trouble getting financing. Dutch banks are much more tightly regulated than before, so there are big opportunities there."

A good time to go abroad

With nine branches in Europe now, ICBC will set up two more branches in Portugal and Poland later this year, according to Zhang.

But Zhang expressed some caution about ICBC's global expansion. "Frankly speaking, ICBC is still not an international bank, given that 95 percent of its assets are from China. Our services and products naturally take the domestic market as a priority," said Zhang. "We are certainly not on a par with HSBC or Citibank in terms of global services at the moment."

Li Lihui, president of BOC, said at a forum in January that Chinese banks still need to catch up with foreign competitors. While not revealing specific figures for BOC, Li said that other Chinese banks' overseas assets accounted for less than 8 percent of their total assets, on average, with overseas profits contributing a maximum of 5 percent of their overall net profits.

"Chinese banks have an imbalanced income structure as they are over-dependent on interest margins, which contribute 70 to 80 percent of their net income. So the banks are very likely to face great risks in the future," Li noted.

Now is a good time for Chinese banks to go abroad, but they have to make sure about their strategy, Li Mingxian, president of China Guangfa Bank, said at the same forum.

Heading overseas doesn't only mean establishing a branch office or acquiring a foreign bank, but rather meeting the international criteria on businesses, service standards, product lines, marketing and risk control, Li pointed out.

Qiu Yunping, president of HSBC Shanghai Branch, believes that internationalizing Chinese banks can also help hedge against financial risks. "Many financial institutions are only doing business related to China's economy. It's not a problem at the moment, but if China's economy becomes unstable, these companies will be greatly affected. Investing overseas will help our banks to perform steadily in all economic cycles."