Study Of Motivation And Performance Of Bank Of Ningbo's Introduction Of Overseas Strategic Investors

Before China joined WTO,foreign financial institutions were eager to enter Chinese financial markets to share the economic booming brought by China's reform and opening policies.They have many advantages in corporate governance,risk control,asset management,and credit /loan origination and services.However,China was in an economic transition phase and China's financial systems were far from flawless.Financial markets were immature and underdeveloped,and domestic commercial banks were less competitive.In order to reduce the adverse impact on domestic financial institutions by the sudden influx of foreign financial institutions,which may lead to financial crisis,the authorities took a step by step,gradually open policy.Foreign banks were not allowed to set up branches in China,but they could take a minor stake in Chinese banks.In order to reduce the risks of city credit unions/banks and improve their competitiveness,the capital improvement and stock offering of commercial banks in the beginning of this century opened a channel for foreign financial institutions to enter China's financial markets-the overseas financial institutes could invest in and/or buy equities from domestic commercial banks as strategic partners.In 1999,the International Finance Corporation invested in Shanghai Bank,opening the door for foreign financial institutions to enter the domestic financial markets.This paper,using OCBC Bank of Singapore becoming a strategic investor of Bank of Ningbo as an example,explores city commercial banks' motivations and effectiveness in utilizing overseas strategic investors.Based on the economic situation at that time,this paper analyzes the motivations and whole process of introducing OCBC Bank of Singapore as a strategic investor for Bank of Ningbo in 2006,including overall planning and preparation,due diligent,and pros and cons.It analyzes Bank of Ningbo's profitability,liquidity,and risk control after its partnership with OCBC Bank of Singapore.The reasons for selecting Bank of Ningbo for this study are as follows: first Bank of Ningbo is one of the first public traded city commercial banks,and second the ownership structure of Ningbo Bank is in line with the capital requirements of state-owned banks.The ownership structure of Ningbo Bank is more reasonable.Foreign investors can take stakes in Bank of Ningbo,but they cannot have controlling voting right.The example of Bank of Ningbo can provide guidelines for other city banks in seeking for strategic investors because its ownership structure is more suitable for such a partnership.Conclusion: The introduction of overseas strategic investors by city commercial banks can increase their capital adequacy ratio and reduce operational risks.It will help to recruit senior management talents and improve personnel management.It can also reduce government control and expand both domestic and international businesses.It can have positive impact on profitability,liquidity and risk control of city commercial banks.However,there are some problems in the process as well,such as inconsistent objectives of the two sides,dilution of domestic bank's control,the effectiveness not meeting the expectation,etc.It is recommended that city commercial banks should carefully select foreign strategic investors and plan ahead for the duration of partnership,and in the meantime pay more attention to improve their own operating efficiencies,and not too rely on foreign financial investors.