The financial world is brimming with news from both the biggest and smallest ends of the spectrum today, with banking giant ICBC (HKEx: 1398) making a new move into Turkey as finance newcomer Baidu (Nasdaq: BIDU) finds headaches in the micro-lending business. ICBC’s acquisition of a majority stake of Turkey’s Tekstil Bankasi is part of its ongoing global expansion, and looks like a relatively good choice of markets for its latest overseas purchase. Meantime, Baidu’s clean-up of its peer-to-peer (P2P) lending platform reflects the kinds of headaches that China’s Internet firms are likely to face as they pile into the lucrative but also fraud-prone financial sector.
We’ll start our financial round-up with ICBC, whose acquisition comes as China’s major banks wrap up one of their worst quarters in years. ICBC reported just 7 percent profit growth in this year’s first quarter, its worst performance in almost 5 years, as the nation’s banking sector took a double hit from China’s slowing economy and a recent migration of depositors to better-yielding products being offered by Chinese Internet firms like Baidu and Alibaba. (English article)
Against that backdrop, ICBC’s newly announced purchase of 75.5 percent of Tesktil Bankasi for $316 million doesn’t look like such a huge deal. (company announcement) ICBC is acquiring the stake from a Turkish-based holding company, and some quick math will show the sale price values the bank at a relatively modest $420 million. That means that even though I haven’t seen this bank’s financial details, it’s probably a small player in the market that specializes in lending to a limited base of clients.
ICBC points out that Turkey is China’s third largest trading partner, and that annual bilateral trade between the 2 sides runs at $28 billion. Thus this purchase looks clearly aimed at trade finance, though perhaps it could someday serve as a platform into other areas as well. From a broader perspective, the choice of Turkey as its latest overseas destination looks quite smart due to the strong trade relationship, even if ICBC’s first step into the market looks just a tad underwhelming.
Next let’s look at Baidu, which reportedly is conducting a major cleanup of its P2P platform that links up people with excess cash to lend to entrepreneurs in need of money. These kinds of platforms are becoming increasingly popular in China as a way to finance the country’s small and medium sized businesses, and I’ve written recently about several up-and-comers in the space. (prevous post)
Such platforms operate alongside a much larger and unregulated gray market, which sees similar lending between private individuals occur offline and is often cited as a major risk to China’s financial health. These P2P sites are loosely regulated at this stage; but their web presence and operation by major corporations like Baidu means they’re easier to oversee, which probably makes them more attractive than gray market lenders to regulators in Beijing.
Against all that backdrop, this clean-up by Baidu of its P2P site looks like a relatively positive development, perhaps signaling it intends to plow major investment into the business in the next few years. The latest media reports say Baidu took the platform, which hosts more than 800 lenders, offline earlier this week as part of the clean-up. (Chinese article) It made the move as another P2P platform in Shenzhen was shut down after reportedly defrauding more than 1,000 investors out of 17 million yuan ($2.7 million). The Shenzhen case highlights the kinds of challenges that Baidu and others will face not only from the P2P lending business, but also from other financial services as they pile into a sector that is lucrative but also rife with fraud potential.
Bottom line: ICBC’s latest overseas acquisition looks like a smart but modest step into Turkey, while Baidu’s cleanup of its P2P lending site underscores risks it and others will face as they move into financial services.